PE Co-Investment Analysis

neil91's picture
neil91 - Certified Professional
Rank: Orangutan | banana points 360

For people that do private equity co-investments alongside General Partners, what does your analysis tend to focus on? Do you tend to create your own models or are you modifying assumptions and casing the GP's model?

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Comments (5)

Dec 29, 2018

Hey neil91, the following topics might be helpful:

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Fingers crossed that one of those helps you.

Most Helpful
Jan 1, 2019
neil91:

For people that do private equity co-investments alongside General Partners, what does your analysis tend to focus on? Do you tend to create your own models or are you modifying assumptions and casing the GP's model?

Modifying GP assumptions. Sometimes if we feel a certain part isn't detailed enough we would break the model and insert our own assumptions. For example, if management only takes into account growth capex, we would make an assessment of maintenance capex and factor that into the model.

The bulk of the analysis focuses on stress testing the assumptions. How silly can your assumptions be that still gets you to your desired returns. For example, if the company has been well over industry growth rates. If you just assumed it grew at market rates and be able to get to your returns, then it is an easy sell at the IC. I had one case where because of the structuring and low entry multiples, we could assume the company growth declines and we could hit our targeted returns, another very easy sell.

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Jan 1, 2019

Yeah, my team usually takes the base GP model and then we'll diligence all the inputs and assumptions and tweak them as needed. Lots of building in different cases - GP case vs our baseline, upside, and downside cases.

You're absolutely right we will break the model and insert our own more complex builds for things as needed. Always layer on LP returns on top of course.

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Jan 5, 2019

Thanks guys. How do you then monitor your co-invest positions? Do you get quarterly reports from the portfolio companies? Also, if a platform company makes an add-on acquisition, will you then update your model?

Jan 1, 2019
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