What is Private Equity? some of us reading this stories, the word private equity may seems a little bit unfamiliar.
The definition of private equity by the famous Investopedia is as follows, “Equity capital that is not quoted on a public exchange. ” Simple isn’t it? Example of private equity in Indonesia is the Orang Tua group. So now we understand about private equity, but what’s in it for us finance students? The answer is the Private Equity Firm who specializes in dealing about the private equity.A private equity firm is an investment manager that makes investments in the rivate equity of operating companies through a variety of loosely affiliated investment strategies, including leveraged buyout, venture capital, and growth capital. Private Equity firm is a very viable option for us finance students as a career, and they also offer a competitive reward compared to other financial institution. Private Equity Strategy Below are some of the strategies commonly used by Private Equity firm as a base for their operation. The strategies we describe are used for more mature companies that already have an operating cash flow. .
Leveraged Buyout Leveraged buyout is strategy of making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage, in other words debt. 2. Growth Capital Growth Capital is a type of private equity investment, most often a minority investment, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a significant acquisition without a change of control of the business. 3. Mezzanine CapitalMezzanine Capital refers to a subordinated debt or preferred equity that represents a claim on a company’s assets, which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock. Private Equity in Indonesia We’ve all read the textbooks. It’s boring to read without knowing the real life example, to know how it really is in Indonesia.
Private Equity (PE) in Indonesia is growing, with the recent event of Saratoga’s IPO. until it did Indonesia’s first ever PE going for IPO in June 2013, under Sandiaga Uno’s eadership.Saratoga receives money from blue-chip investors such as World Bank International Finance Corp, and re-invest those money in companies by acquiring them that so that Saratoga can at least generate a 25% return. Saratoga would rehabilitate the crisis-facing companies and re-sell the assets later at a higher price. Saratoga has invested the money in various companies; Adaro Energy, Mandala Airlines which was heading for bankruptcy until Saratoga took 51% stake in the company, Medco, and various others. As a Private Equity firm invests, its partners also akes position at the company to restore them.
Indonesian PE accounts for less than 1% of the GDP, but is a growing sector. Its fundraising has grown from $778 million in 2008, to over $1 billion in 2012. This number accounts for the various local and international PE firms. Local firms that are competitive to Saratoga are Ancora Capital, Quvat, Yawadwipa and Northstar which is now allied with Texas Pacific Group (TPG) Capital, one of world’s largest PE firm. TPG is not the only global PE player to invest in Indonesia. Other big names such as KKR, Carlyle, Blackstone, and CVC are also players in the market.CVC had done one of Indonesia’s largest PE buy-out on Matahari department store back in 2010 and bids to sell its stake in Matahari for twice of its original investment.
This condition reflects PE funds’ expectation of high returns. Investment in various sector are expected to continue, with consumer goods being perceived as the most promising sector, followed by energy and health care. PE may only account for 1% GDP for now, but if it continues to grow to up to 3% as expected by Saratoga, PE will play an increasingly significant role for Indonesian businesses.