private equity glossary

When the consideration sought for a company’s acquisition is not given, it is also classified in this category. The Acquisition of Certain Assets occurs when certain assets of a company, subsidiary, division, or branch are acquired. General partner contribution/commitment– The amount of capital that the fund manager contributes to its own fund. This is an important way for limited partners to ensure that their interests are aligned with those of the general partner. The US Department of Treasury recently removed the legal requirement of the general partner to contribute at least one per cent of fund capital, but this is still the usual contribution. Family office An entity that provides services to one or more affluent families, including investment management and other services (accounting, tax, financial and legal advice etc.).

State Securities Regulators

An option that ceases to exist if the underlying asset reaches a certain price. Price process where price changes stay large even as the period gets shorter. Equation that relates the differential between forward and spot rates to interest rates in the domestic and foreign market.

Exchange rates determined by demand and supply for the currency, and thus change over time. Stock price without the rights attached to the stock, in a rights offering. Weighted maturity of all the cash flows on an asset or liability. A call option that ceases to exist if the underlying asset rises above a certain price. the rate used to move cash flows from the future to the present, in discounting, or from the present to the future, in compounding.

Microcap Stock

private equity glossary

A fund with money from a country’s reserves that invests in activities that should benefit the country’s economy and citizens. The funding is usually from central bank reserves that accumulate through trade surpluses and through revenue generated from the exports of natural resources. A merger is when two companies combine and an acquisition is when one company buys another. As the terms are somewhat overlapping (a company can be “bought” and then “merged” into the existing operations) they are often used as one term, as in “M&A”. Goods/services that are bought from a company in a foreign country. For example, when America buys Canadian lumber, it is “importing” it.

Preferred stock where the preferred dividend rate is pegged to an external index, such as the treasury bond rate. An institution, usually a bank, designated by the issuer as the custodian of funds and official representative of bondholders. Your time horizon is the number of months, years, or decades you need to invest to achieve your financial goal. Real return is what is earned on an investment after accounting for taxes and inflation. Real returns are lower than nominal returns, which do not subtract taxes and inflation. A way for shareholders to vote for corporate directors and on other matters affecting the company without having to personally attend the meeting.

allows firms that have established products and concepts to develop and market them. Underwriting agreement where the investment banker provides back-up support, in case the actual price falls below the offering price. Current market rate; Often used in the context of commodities or foreign currency. Venture capital provided to start-up firms that want to test a concept or develop a new product. Stock price with the rights attached to the stock, in a rights offering.

When it looks like central banks will keep rates low , the price of government bonds tend to go up because yield is going down . Analysis that starts at a “macro” level and then proceeds to a more “micro” level. Top-down analysis might start with a consideration of global economic growth, then proceed to examination of growth prospects of individual countries, then analyze industries, then select individual companies for investment. private equity glossary A statistical calculation that describes how far from the average of a set of numbers the individual numbers that make up the set are. For example, an investor who sells a stock short at $10 today, and buys it back for $8 next month, has made a profit of $2 from this short sale. A financial statement that shows how much profit was earned over the course of a given period , by subtracting expenses from revenues.

Beta computed by taking a weighted average of the betas of the businesses that a firm is in. These betas, in turn, are estimated by looking at firms that operate only or primarily in each of these private equity glossary businesses. Accounting estimate of the value of an asset or liability, usually from the balance sheet of the firm. Assets that have identical cash flows cannot sell at different prices.

This is usually because government bond yields are determined by the market, which might anticipate future formal changes to interest rates. So, yields are government bonds might go up before the formal interest rate target is increased. Since competition usually drives down prices for customers, the government tries to ensure that no major industry suffers from a lack of competitiveness. This almost always involves laws that preclude explicit collusion between companies regarding setting prices. It sometimes involves the government blocking companies from merging with each other or buying one another.

An account that helps determine the net debt and working capital that will be used to establish the final price of an M&A deal according to the agreed price formula. A general partner’s share of the private equity glossary capital gains from a fund, usually 20%. The main entity responsible for the issuance of new equity, debt and other securities. When a fund compares its returns to the performance of similar funds.

Share Subscription Agreement (ssa)

Consequently, the lease, when signed, is recognized both as an asset and as a liability on the balance sheet. Debt , where the borrower has the right to pay the bonds back at any time. The option private equity glossary to pay back will generally be used if interest rates decrease. Process of polling institutional investors prior to pricing an initial offering, to gauge the extent of the demand for an issue.

private equity glossary

At the end of the lease period, the lessee returns the property to the lessor. The lease expense is treated as an operating expense in the income statement and the lease does not affect the balance sheet. Economic exposure that measures the effects of exchange rate changes on expected future cash flows and discount rates, and, thus, on total value. Sum of the present values of all of the cash flows on an investment, netted against the initial investment. Accumulated losses over time that can be used to offset income and save taxes in future periods. Using new debt to repurchase equity and increasing debt ratio substantially in the process.

Asset

  • Warrants are option certificates issued by companies which can sometimes be quoted.
  • Frequently unsecured, it usually bears interest at a higher rate than secured loans and often carries an option to give the lender a stake in the equity .
  • Warrants are invariably an option to subscribe new shares whilst the term option can be used interchangeably to describe subscription options and options to acquire from another investor.
  • They entitle the holder to buy a specific number of shares in that company at a specific price , at a specific time, times, or during a specific period in the future.
  • It is a flexible form of funding, typically used in a leveraged buy-out to achieve the desired overall risk/return profile for investors.
  • As such they are rather like long-term call options, presenting opportunities for capital gain which can make them an attractive medium for both speculative and longer-term investing.

Stock

The buying of a security, with an agreement that the security will be soldback at a specified price at the end of the agreement period. Implied interest rate in a repurchase agreement, calculated based upon the difference between the price at which a security is bought and the price at which it will be sold back. Preliminary prospectus issued by a firm going public, while the registration is being reviewed by the SEC. Arbitrage relationship governing the prices of a call and put option, with the same strike price, same exercise price and on the same underlying asset. Accounting approach for acquisitions where the book values of the two firm involved in the acquisition are added up, and the market value of the acquisition is not shown on the balance sheet.

A line depicting the magnitude and timing of cash flows on an investment. Bond rating estimated using a financial ratio or ratios for a firm. This is in contrast private equity glossary to an actual rating that is usually provided by a ratings agency. Unsecured bond with claims against assets that are subordinated to the claims of other lenders.

An analysis that compares a private fund’s performance to a public benchmark or index. There is no universal definition of net debt, which makes its definition in a LOI and SPA paramount. A financing round between senior and subordinated loans that typically includes equity-based options in the form of warrants. The amount general partners charge limited partners to operate a fund. A commonly accepted way to measure concentration within an industry, which the US Department of Justice uses to review deals for anti-trust considerations. It is calculated by finding the square of the market share for each firm competing in a market and adding up the results, which can range from near zero to 10,000.

The commitments the Limited Partner has made as a percentage of the assets it has under management. Mezzanine financing for a company expecting to go public within six months to a year. Chapter 11 is typically private equity glossary used for business bankruptcies and restructuring. It allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts.