PRIVATE EQUITY & VENTURE CAPITAL
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PRIVATE EQUITY & VENTURE CAPITAL
6QQMN562
ASSESSMENT OVERVIEW & MARKING CRITERIA
Your assessment for the Private Equity & Venture Capital module will be based on the submission of
coursework with two components and with a total word count of 3,500 words.
PART 1 (60% weighting)
You are required to submit a highly abridged “Investment Paper” recommending a buyout of a
company AS IF YOU WERE AN EXECUTIVE IN A PRIVATE EQUITY FIRM.
For the avoidance of doubt this means that you are writing the paper for people who know all about
Private Equity and therefore want to read your conclusions – NOT A PAPER EXPLAINING WHAT
PRIVATE EQUITY IS.
Your paper will not cover all the items required for an actual Investment Paper (or reach the levels of
detail needed), but it will provide you with an opportunity to demonstrate key learnings from the
module, namely:
▪ How buyouts work;
▪ How a commercial view of the investment impacts on valuation, risk and transaction structures;
▪ How management is incentivised and how returns flow to fund investors.
We will use the tutorials to ensure that you are clear on the technical aspects of a transaction (e.g.
financial, structural, valuation/returns) and blend these with the core commercial reason for making
the investment. You will only need to focus on specific elements of the investment paper as shown
below:
▪ Introduction/Executive Summary
▪ The Commercial Opportunity
▪ Market Context
▪ Risks
▪ Valuation and Investment Returns (using a very basic financial model which we will discuss in detail)
▪ Exit Options.
The paper needs original thought. A high level of perception as to the fundamental investment
opportunity will drive a higher grade. Excess words that do not add to the reader’s understanding of
your recommendation will have a negative impact – but, of course, your narrative will still need to
have a natural logical flow.
P a g e | 2
Early in the module, you will be offered some choices as to the illustrative investment candidates using
real publicly quoted businesses. YOU MUST ASSUME THAT THE BUSINESS YOUR WRITE ABOUT IS
NOT A PUBLIC COMPANY FOR THE PURPOSES OF THE ASSESSMENT BUT INSTEAD A PRIVATE ONE
WHERE THE EXISTING FAMILY SHAREHOLDER WISHES TO SELL TO THE INCUMBENT MANAGEMENT
TEAM.
References to the share price performance of the company, market value, dividend yield are therefore
completely irrelevant. Remember also that in a buyout the company is bought debt free – and then
the new owner decides what the capital structure will be going forward.
In creating the financial model for your chosen company, you will need to propose an entry (and
exit) valuation as well as suggest a leverage multiple and then allocate enough equity to
management to result in a good result for them and also a good result for the PE firm.
Please ensure that you copy and paste the simple buyout returns model we provide you with into
your assessment so I can see what you have assumed.
NOTE THAT WE DO NOT FOCUS ON FINANCIAL MODELLING IN THE MODULE SO DO NOT CREATE
ANY OTHER MODEL FOR THE ASSESSMENT.
PART 2 (40% weighting)
Based on your tutorials with Simon Welte, who will guide you through a real-life case study of a buyout
which raises several interesting features that have generated academic debate, you will be asked to
critically evaluate your chosen investment candidate in Part 1 through an academic lens.
It is integral that for this academic essay you change your perspective to an academic finance scholar.
Understanding what may lead to challenges or even the failure of YOUR proposed private equity
buyout – despite the attractive investment model – will provide you with an opportunity to develop a
differentiated view. You should consider the different concepts covered in the tutorials and the role
they may play for your specific investment proposal, answering the following question: What are the
critical considerations for your proposed buyout to become a successful investment?
Of the four discussed, please focus on two elements (and their potential interrelation):
▪ Capital structure and leverage
▪ Creation, capture and destruction of value
▪ Corporate governance: Management incentives and boards
▪ Realization of value: Information asymmetry, market timing and PE exit.
Similar to the investment paper, this second part should NOT BE A PAPER EXPLAINING WHAT PRIVATE
EQUITY IS, NOR WHAT THE MAIN FINANCE THEORIES ARE. Rather, it should demonstrate your critical
thinking and application of the knowledge and analytical skills learned on the module to a real-life
case.
P a g e | 3
Illustrative questions you might want to ask yourselves are:
▪ “Does the level of leverage chosen appear optimal with respect to capital structure theory and at
the same time leave enough room to adapt to fluctuations in the external market environment?”
▪ “How will value be created or captured based on your paper, and which groups of stakeholders
might be affected? Do you believe that management is well incentivized to minimize agency costs?”
▪ “Which important external or internal factors have to be considered for private equity exit strategy
and timing that might adversely affect investment performance?”.
REQUIREMENTS AND SUBMISSION
Your submission should be limited to 3,500 words in total 2,000 words for Part 1 and 1,500 words for
Part 2.
This word count excludes diagrams, tables, headings and references – the use of which are encouraged
to help make your case as compelling as possible.
NOTE THAT ACADEMIC REFERENCES ARE NOT RELEVANT TO PART 1.
IN PART 2, PLEASE APPLY THE NAME-YEAR FORMAT AND PROVIDE A BIBLIOGRAPHY AT THE END IF
REFERENCING ANY ACADEMIC OR NON-ACADEMIC SOURCES.
Reading your paper before submission and checking for errors is a basic need for every paper and
failure to do so has a very negative impact on the reader.
The submission deadline is 10am on 19th December 2022. Submissions after this will not be accepted
by the exam board.
P a g e | 4
MARKING CRITERIA
The examiners will adopt the perspective of the Investment Committee at the Private Equity firm (in
Part 1) and of an Academic Private Equity Research Group (in Part 2). Marks will be awarded based
upon the following four criteria:
Marking Criteria
Approximate
Weighting
Demonstrating your understanding of Private Equity 25%
Articulating a logical, holistic, investment case with relevant data points (in Part 1)
and
an incisive academic analysis of your chosen business (in Part 2)