Raising Capital through Private Equity

1.3 Definitions of equity:

Equity is the owner's interest into the firm or business as on preferred stock or common stock. It is equal to the total assets less total liabilities it is called as the net book value or the net worth or the shareholders equity. There is a real state so there is difference between the property owners and the owners owes against that property. The future trading context there is a value for the for the securities in the accounts. At the going price it may be liquidate. The values of securities are deducting the margins.

Preferred stock and the common stock as the ownership Interest in a firm.

Equity is also called the shareholders value, book value or net worth into the company.

There is fairness in law for the equity.

The out standing mortgage loan is deduct from the value of the property.

1.4 Features of equity:

The tem equity describe the ownership of equity ownership is represented by the share that give their holder apart or a share of a enterprise. Equity share are called from different names as the common stock in U.S and mainly ordinary shares elsewhere.

Equity also includes instrument that give their holder their holder the right to subscribe for the common stock in the company at sometime in the future. Both share options issued by a company and share warrants give their holder the right. Options and warrants can be described as delayed equity because they might be used to create new equity shares. But not until in some future date. There is also a view that convertible bonds and convertible preferred stocks are equity shares of the company at a future date at a specified rate of conversion. if the holder of the convertibles exercise their right of conversion. The company must issue new ordinary shares.

Many corporate treasures stock market analysts would argue that irredeemable preferred stocks is also the form of equity because they are the permanent part of permanent share capital of the company.

The definition of equity is not clear cut and some securities and instruments are more properly regarded as hybrids part debt and part equity .the equity investment in accompany is represented in accounting terms within its balance sheet . equity capital is the net worth of the company consisting of its total asset less its liabilities to creditors and other providers of capital the net assets of the business.

In the balance sheet equity capital is represented by the ordinary shareholders share capital at nominal price and the reserves such as the share premium accont revaluation reserves and retainrd profits accounts. How ever the accontig valuation of assets particularly fixed assets is notoriously unreliable and the equity investment in a company cannot be measured reliably by balance sheet values.

1.5 What do I need the equity capital for?

If u wants to expand your business then you need money for this and which you can raise from the investors those who are agree to invest their money in your firm. Every one wants to increase the finance of his company. To raise the equity finance sometime it is very costly and expensive for the firm. The companies avoid getting loan from the financial institutes. Because there is interest on the loans are too much that are not affordable by the companies.

Chapter 3 raising capital through private equity

3.1 Introduction of private equity

Private equity History

The private equity concept has been launched in 1946. At that time When the American institute "American research and development authority" decided to give confidence to the private sector. They raise equity for the soldiers of the world war 11.While the ARD had trouble inspiring any private interest in the venture ended up finish; they are major because this marked the first documented time in it is the first time in the history that an institute of this type has been introduced.

Definition

Private equity is in fact a very broad term, used to define types of funds or investments.

The term signifies the source of the money as opposed to the form which the money takes

on. As the name suggests, private equity is private, i.e.: it is not reachable in public

markets, such as the stock exchange.

One definition of private equity that is in use is "Investing in no-publicly held securities

through a negotiated process," (Banc 2004).This definition is fairly descriptive in that it

becomes clear that the process is indeed negotiated; the return on the investment varies

and the proportion of the company's profits that the investor keeps is arranged between

the investor and the enterprise.

The Indian Case

The private equity is recently introduced in india if we see back in preveious century 90s decade. There is boom, boom on private equity in 1990s with corporations spend (and receiving huge amount for them) with their funds. In the last years In recent years, there has been a revival of these firm, within india there is boom on the firms of india infrastructure and sciences, real and infrastructure growth up these days in india. such as Warburg Pincers which works globaly, Blackstone and the Carlyle Group also workls in india while Indian pl gamers like ChrysCapital and ICICI Venture also have a great presence.

equity

3.2 categories of private equity:

3.2.1 Leveraged buyout:

drawing of the fundamental structure of a basic leveraged buyout transaction. Leveraged buyout, BO or Buyout refers to a strategy of creation equity funds as element of a transaction in which, business or commerce unit a company assets is purchased from the existing

Shareholders normally with the use of financial leverage. The enterprises interested in tis type of transactions these companies are ,mature an The companies mixed up in such

Transactions are usually mature and make operating cash flows.

In leveraged buyout a sponsor is involve to sponsored for acquiring the business with out committing to invest all the capital for the acquisition of business .

. for doing this, the sponsor will move up

Acquisition debt which finally looks to the cash flows of the acquirement target to make

Principal payments and interest Acquisition debt is given to sponsor who has financed in business and there is no grantee of investment invested by the sponsors.

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In all that this structure is attractive to the investors who have limited funds and not spend more than this. Greatly warning the degree of choice of that leverage, allowing them the benefits of leverage. There are two types of this kind of finance and those are much important for us.

(1) The sponsor also not want to more on the acquisition of asset he does not pay more than the debt

(2) The returns of the investor is more than that of the cost of debt.

the amount of debt used for transaction costs vary according to the financial circumstance and market situation history of the achievement target,.

As a percentage of the purchase price for a leverage buyout target,

s, the willingness of lenders to expand credit (both to the LBO'sfinancia

sponsors and the business to be purchase)as such the liabilities and the interest of the company cover all debt costs

. Historically the portion of the debt LBO will vary from "50%-80%"

3.2.2 VETURE CAPITAL:

venture capital is yh subheading of private equity and it is only used in less mature fir,ms, for the open, expansion and early development, of business it is mmostly used in nrw firms those which are at their initial stage , new products and new marketing concepts venture capital fund is expand the business these funds are required at the launching of the business and more ofenly used at the initially stage of the firm . this is used for the expansion of business venture capital provide the funds to the business. So the venture capital is used motly and are also expensve for business. So it is the big drawback of it.

Entrepreneurs often require considerable capital during the

Shaping stages of their business life cycles. For the developing of products and ideas that Many entrepreneurs do not have adequate funds. To funding projects themselves, and they must therefore look for outside financing .The venture Capitalist's need to distribute high returns to reimburse for the risk of these savings makes Venture funding an costly capital resource for companies. Venture capital is most appropriate for Businesses with huge up-front capital necessities which cannot be financed by cheaper substitute such as debt. Although venture capital is habitually most closely related with fast-

Growing technology biotechnology, and fields, venture financial support has been used for other more

conventional businesses

3.2.3 CAPITA GROWTH:

Most often marginal investments capital refers to equity investments, that are looking for restructure operations, capital to expand, finance a chief acquirement without a change of control or in relatively mature companies enter into new markets or of the business. These corporations are likely to be much more mature than venture capital funded Companies, citation required business that seek development capital will often do so in order to finance a transformational even tin their life cycle. Growth capital can also be used to affect a reformation of a corporations' balance sheet, for reducing the cost the company has its own balance sheet. Any company able to generate the funds according to its need and for the acquisition of the assets also for the expansion of business. Investments are usually made in the shape of convertible e or preferred security

3.2.4 DISTRESSED AND SPECIAL SITUATION:

Securities of fiscally stressed corporations.

"Distressed or Special Situations is a waste topic for the spending of business

The "distressed" category encompasses two

Broad sub-strategies including:

The distressed strategies has two sub types loan for own strategies or how to control the distressed situation. the companies acquire debt through this the securities may merge. Beyond the private equity strategies the private equity has also hedge funds which has a variety of distressed funds or investment strategies.

3.2.5 MEZZENINE:

Mezzanine capital or Preferred equity securities refers to subordinated debt that often represents which are enable to access the high yield market that are often used by smaller companies , allows the most junior fraction of a company's capital structure that is senior to the company's common equity. Equity capital required to finance major expansion or leveraged buyout . this kind of loan is provided by banks and the companies want a big return against the loans than other senior lenders.

3.2.6 SECONDARIES:

The investment which is made in the existing equity asset is called the secondariesthese transaction invovlve the portfolio of direct investment or the interest sale of private equity the acquisition of invest for the existin business units. The private equity is more liquid than the other long term loans . investors has the capability to grown up the vintage diversification secondaries are experienced class from the different cash flows many big corporation acquire private equity for the business and these transactions are made through third parties private equity funds are raise through these methods.

3.2.7 OTHER STRATEGEIS:

Other strategies that can be considered a close adjacent market or private equity include Real Estate: Private equity will typically refer to the riskier end of the investment spectrum including opportunity funds and value added where the

investments frequently more closely resemble leveraged buyout than traditional real estate

investments. Real estate to be a separate asset class is considered by the certain investors in private equity.

Infrastructure: the investments in a variety of public works ,that are made typically as part of a privatization initiative on the part of a government entity (e.g., public transportation, bridges, toll roads, tunnels, airports, and other public works).

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3.2.8 Private equity funds:

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Private equity fundraising refers to the action of private equity firms seeking capital from

Investors for their funds. Typically an investor will invest in a specific fund managed by a firm,

average fund. In 2005here were 25 investors in the average private equity fund, this figure has

Now grown-up to 52 according to reign ltd. (formerly known as Private Equity Intelligence).

The managers of private equity funds will also invest in their own vehicles, classically providing

Between 1-4% of often private equity finance managers will employ the services of outdoor fundraising teams.

known as placement negotiator in order to raise capital for their business.

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