Private Capital Investing

CHAPTER 10Management of the Portfolio Companies and Exit

INTRODUCTION

The management of an investment by the private equity fund focuses on:

• reporting: a periodic report that the investee company prepares for the fund;
• monitoring: controls based on reporting and aimed at creating value;
• creation of value: the activity implemented by the fund to increase the value of the portfolio company.

Whilst we do not deal in great detail with this topic in this book, it is important to provide a concise outline of the different techniques since value creation is the essence of a private equity transaction.

REPORTING

The goal of reporting is to:

• promptly report the economic and financial performance to the fund;
• monitor key variables for understanding business performance (through the Tableau de Bord);
• verify that the indicators subject to covenants and/or guarantees are in line with contractual expectations and forecasts;
• provide the fund with information that the same in turn will need to provide its investors.

The frequency of the information can vary from monthly (on variables such as turnover and net debt) to quarterly (income statement and Tableau de Bord), to half-yearly (balance sheet).

MONITORING

The monitoring activity is much more intense than that of the public markets or the bank, as the fund does not have a variety of financial instruments (overdrafts, etc.) that allow it to constantly monitor the company's performance.

The monitoring activity of a fund consists, therefore, ...