PRIVATE EQUITY DEMYSTIFIED An explanatory guide
John Gilligan and Mike Wright
An initiative from the ICAEW Corporate Finance Faculty
This is the first report to be published under Financing Change, the thought leadership programme of the ICAEW Corporate Finance Faculty. The faculty is the world’s largest network of professionals involved in corporate finance and counts accountants, lawyers, bankers, other practitioners and people in business among its members. Financing Change aims to advance the economic and social contribution of corporate finance activity by promoting better understanding and practice. Once a niche market for finance, private equity today competes with the public markets as a provider of equity capital, and is the owner of many large companies which are household names and major employers. Private equity has been the subject of public debate in many jurisdictions and a number of common public policy challenges have arisen. If future private equity deals are to achieve their full economic potential and avoid being constrained unnecessarily by legislators and regulators, it is important that dealmakers continue to have regard to the context in which private equity transactions take place, and that greater effort is made to provide all stakeholders with clear, transparent and objective information. Private equity demystified – An explanatory guide was commissioned to shed light on the motivations of the main participants in private equity transactions and on their risks and rewards. It deals with issues of international relevance, using UK-specific examples to illustrate operating models, remuneration practices, employment regulations and taxation policy. The report also includes a review of academic studies on private equity transactions from around the world. The findings from these studies, which are woven into the analysis, show not only what we currently know about the impact of private equity on the economy, on companies and on other stakeholders, but also what we don’t know. Private equity’s challenge will be to sustain a responsible approach to public scrutiny by regulators, governments and other stakeholders, such as trade unions and the media. Media coverage of private equity and some public commentary have frequently displayed a poor understanding of how private equity operates, yet these sources are often relied upon as fact. This report provides an objective explanation of private equity, recognising that for public policy to be effective it must be developed on an informed basis. The work is unlikely to result in a reduction in the scrutiny of private equity. Its value will be measured in better-informed debate, in private equity’s effective engagement with wider stakeholders and in well thought-out public policies. We welcome views and other comments on this work and related themes and on the areas identified for future research. For further information on the Financing Change programme and how to get involved please email firstname.lastname@example.org or telephone +44 (0)20 7920 8685. For information on the ICAEW’s work in funding academic research please contact Gillian Knight, Research Manager on +44 (0)20 7920 8478. This report, which includes a summary of academic studies and references, is also available to download from www.icaew.com/corpfinfac.
August 2008 © John Gilligan and Mike Wright 2008 All rights reserved. Dissemination of the contents of this report is encouraged. Please give full acknowledgement of the source when reproducing extracts in other published works. No responsibility for any person acting or refraining to act as a result of any material in this document can be accepted by the authors or The Institute of Chartered Accountants in England and Wales. ISBN 978-1-84152-603-4
PRIVATE EQUITY DEMYSTIFIED
An explanatory guide
John Gilligan and Mike Wright
Page About the authors Acknowledgements List of figures,...
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