Houjichasan

Value Creation
1) Ability to re-engineer the firm and operate more efficiently
2) Ability to obtain favorable financing
3) Superior alingment of interest between mgt and private equity owners

Mgt Fee: fee paid to GP annually (based upon committed capital)
Transaction Fee: split between GP and LP, fee for investment banking services
Carried Interest: GP's share of funds profits (usually 20% after mgt fee)
Ratchet: allows mgt to increase ownership in company based upon performance
Hurdle Rate: IRR the fund must meet before GP recieves carried interest

PIC: % of capital utilized by the GP
DPI: realized return (cumulitive distribution paid divided by cumulative invested capital)
RVPI: unrealized return (value of fund holdings divided by cumulative invested capital)
TVPI: total return net of mgt fees and carried interest (DPI + RVPI)

% of ownership = investment / post value
# of shares = (existing shares)x(% of ownership / (1-% of ownership))

CF for LBO
Net Income
+Depreciation/Amortization
- Reinvested Depreciation
- New CapEx
- Increase (decrease) in NWC
= CF Available for Debt Repayment

Beta of Equity = Beta of Assets (1+D/E)
*Remember to recalculate the beta each period to comute the appropriate discount rate