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Private Equity: History, Governance, and Operations, 2nd Edition

Private Equity History, Governance, and Operations, 2nd Edition

  • Author:
  • Publisher: John Wiley & Sons
  • ISBN: 9781118138502
  • Published In: April 2012
  • Format: Hardback , 357 pages
  • Jurisdiction: International or US ? Disclaimer:
    Countri(es) stated herein are used as reference only
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    An authoritative guide to understanding the world of private equity (PE) investing, governance structures, and operational assessments of PE portfolio companies

    An essential text for any business/finance professional's library, Private Equity: History, Governance, and Operations, Second Edition begins by presenting historical information regarding the asset class. This information includes historical fundraising and investment levels, returns, correlation of returns to public market indices, and harvest trends. The text subsequently analyzes PE fund and portfolio company governance structures. It also presents ways to improve existing governance structures of these entities. A specific focus on portfolio company operations, including due diligence assessments, concludes the text.

    • Seamlessly blends historical information with practical guidance based on risk management and fundamental accounting techniques
    • Assists the book's professional audience in maximizing returns of their PE investments
    • Highly conducive to advanced, graduate-level classroom use
    • Purchase of the text includes access to a website of teaching materials for instructional use

    Learn more about PE history, governance, and operations with the authoritative guidance found in Private Equity: History, Governance, and Operations, Second Edition.

  • Acknowledgements

    Preface

    Module I The Private Equity Model and Historical Information

    Chapter 1 Introduction to Private Equity

    Introduction

    What is Private Equity?

    General Terms and Brief Overview

    The LPA and GP Incentives

    PE Firm Structure and Selected Regulations

    Types of Private Equity Investment

    The PE Fundraising Process

    Recent Fundraising Trends

    GP Investment Restrictions

    Conclusion

    Chapter 2 Overview of Historical Trends

    Introduction

    A Brief History of Private Equity

    Private Equity at the Turn of the Century

    VC Investment and Returns by Fund Stage

    VC and Buyout Returns by Fund Size

    Secondary Funds

    Conclusion

    Chapter 3 Trends in Private Equity

    Introduction

    A Changing Tide

    Overall Industry and Fundraising Trends

    Selected Regulatory Changes and Proposals

    Rise of Strategic Buyers

    Conclusion

    Chapter 4 Harvesting Private Equity Investments through IPO

    Initial Public Offerings

    IPO Basics

    Initial Steps in the “Going Public” Process

    Role of the SEC and State Policing Bodies

    Post-IPO Underwriter Responsibilities

    Registration Documents

    Historical IPO Trends

    Initial Public Offering Summary

    Chapter 5 Legal Considerations in IPOs

    Introduction

    Initial Public Offering (IPO)

    Introduction

    Potential Advantages of an IPO

    Potential Disadvantages of an IPO

    Advance Planning Opportunities

    The IPO Process

    Possible Liabilities Faced by a Company and Its Directors and Officers

    Sarbanes-Oxley Act and the Dodd-Frank Act

    Public Company Filing Obligations

    IPO Alternative: Reverse Mergers

    Conclusion

    Chapter 6 Harvesting Investments through Mergers and Acquisitions

    Introduction

    M&A Basics

    Types of Takeovers

    Reverse Takeovers

    The Takeover Process and Financial Advisor Selection

    Analyzing Potential Buyers

    The Sale Process

    The Bidding Process

    Reaching an Agreement

    Historical M&A Trends

    Chapter 7 Legal Considerations in Sale Transactions

    Introduction

    Sale Transactions

    Prior to the Sale Transaction

    Key Deal Issues

    Sale and Acquisition Structure

    Employee Incentive Issues

    The Sale Transaction Process

    Conclusion

    Chapter 8 Intellectual Property and Private Equity

    Introduction

    Intellectual Property Rights and Remedies

    Patents

    Trademarks

    Copyrights

    Trade Secrets

    Pre-Acquisition Due Diligence

    Established Barriers to Entry – Evaluating Investment Value

    Freedom to Practice – Assessing Risk of Proposed Acquisition

    Creating IP Value During Management

    Leveraging and Monetizing Patent Rights

    Bolstering Technological Advantages

    Boosting Brand Development Efforts

    Preserving Knowledge-Based Resources of the Workforce

    Positioning the Exit – Reverse Due Diligence

    Module II Governance Structures in Private Equity

    Chapter 9 The Private Equity Governance Model

    Introduction

    A New Model for Corporate Governance

    An Analogy to Physics

    Corporate Governance and the Management of Crisis

    Public Corporations and the Private Equity Model

    The Magic of the Private Equity Governance Model

    Conclusion

    Chapter 10 Value of Internal Control

    Introduction

    Introduction to COSO and Internal Control

    COSO Background

    Internal Control Defined

    Components of Internal Control

    Control Environment

    Risk Assessment

    Enterprise Risk Management

    Control Activities

    Information and Communication

    Monitoring

    Limitations of Internal Control

    Control Objectives and Control Components

    Effectiveness of Internal Control

    Internal Control and the PE Firm

    Value of Internal Control for PE Fund Operations

    Value and the Control Environment

    Value and Risk

    Value and Control Activities

    Value and Information and Communication

    Value and Monitoring

    Value of Internal Control for Target Companies

    Operational Value

    Financial Reporting Value

    Compliance Value

    Conclusion

    Chapter 11 Internal Control Evaluation

    Introduction

    PCAOB Auditing Standard No. 5

    Phase 1: Planning the Audit

    Risk Assessment

    Scaling the Audit

    Fraud Risk

    Using the Work of Others

    Materiality

    Phase 2: Using a Top-Down Approach

    Identifying Entry-Level Controls

    Identifying Significant Accounts and Disclosures and Their Related Assertions

    Understanding Likely Sources of Misstatement

    Selecting Controls to Test

    Phase 3: Testing Controls

    Testing Design Effectiveness

    Testing Operating Effectiveness

    Relationship of Risk to the Evidence to Be Obtained

    Special Considerations for Subsequent Yearly Audits

    Phase 4: Evaluating Identified Deficiencies

    Phase 5: Wrapping Up

    Forming an Opinion

    Obtaining Written Representations

    Communicating Certain Matters

    Phase 6: Reporting on Internal Controls

    Conclusion

    Chapter 12 Financial Statement Fraud and the Investment Decision

    Introduction

    Money Laundering

    Categories of Fraud

    What Is Fraud?

    The Required Elements of Fraud

    Financial Statement Attestation

    Tax Return Preparation

    Compilation

    Review

    Audit

    Recommendations

    Do Not Rely Solely on Financial Statements

    Pay Attention to Details

    Follow Up on Unexpected or Interesting Items

    Maintain Professional Skepticism

    Explanations Should Be Rational, Reasonable, and Verifiable

    What Do the Financial Statements Say about the Entity’s Ability to Meet Their Objectives?

    Fraud and Due Diligence Procedures

    Background Investigation of Key Employees

    Testing of Journal Transactions

    Check File Metadata

    Conclusion

    Chapter 13 Professional Standards

    Introduction

    Federal Trade Commission (FTC)

    Federal Antitrust Legislation

    Federal Consumer Protection Legislation

    Securities and Exchange Commission (SEC)

    Securities Act (1933)

    Securities Exchange Act (1934)

    Public Utility Holding Company Act (1935)

    Trust Indenture Act (1939)

    Investment Company Act (1940)

    Investment Advisers Act (1940)

    Foreign Corrupt Practices Act (1977)

    Sarbanes-Oxley Act (2002)

      “Private” Equity Going Public

    Introduction to Public Standards

    PCAOB Standards

    PCAOB Auditing Standard No. 1

    PCAOB Auditing Standard No. 2

    PCAOB Auditing Standard No. 3

    PCAOB Auditing Standard No. 4

    PCAOB Auditing Standard No. 5

    AICPA Auditing Standards

    SAS 99, “Consideration of Fraud in a Financial Statement Audit”

    SAS 1 Amendments

    SAS 85 Amendments

    SAS 82 Replacements

    SAS 104, “Amendment to Statement on Auditing Standards No.1, ‘Codification of Auditing Standards And Procedures (“Due Professional Care in the Performance of Work”)’”

    SAS 105, “Amendment to Statement on Auditing Standards No. 95, Generally Accepted Auditing Standards”

    SAS 106, “Audit Evidence”

    SAS 107, “Audit Risk and Materiality in Conducting the Audit”

    SAS 108, “Planning and Supervision”

    SAS 109, “Understanding the Entity and Its Environment and the Risks of Material Misstatement”

    SAS 110, “Performing Audit Procedures in Response to Assessed Risks and Evaluation of the Audit Evidence Obtained”

    SAS 111, “Amendment to Statement on Auditing Standards No. 39, ‘Audit Sampling’”

    SAS 112, “Communicating Internal Control Related Matters Identified in an Audit”

    SAS 113, “Omnibus Statement on Auditing Standards”

    SAS 114, “The Auditor’s Communication With Those Charged With Governance”

    SAS 116, “Interim Financial Information”

    AICPA Accounting and Review Standards

    SSARS 10

    SSARS 12

    Institute of Internal Auditors (IIA) Standards

    Information Systems Audit and Control Association

    Conclusion

    Module III Understanding Operations

    Chapter 14 Contemporary Business and Competitive Intelligence

    Introduction

    Contemporary Business Intelligence

    Sources of Information

    Competitive Intelligence and the External Environment

    Normalizing Performance

    Cost of Capital and the Option to Invest

    Developing “Unique Intelligence”

    An Economic View of Quality

    Developing Relationships and Navigating Crises

    Application to Private Equity

    Investment Decision

    Strategic Management of Portfolio Companies

    Exit Strategy

    Conclusion

    Chapter 15 Organizations as Humans

    Introduction

    Organizations as Humans

    Purpose of the Organization

    Genesis

    Development and Specialization

    Parts of the Whole and Maturation

    Environmental Adaptation

    Environmental Influence and Interaction

    Maturity Creates “The Machine”

    Death of the Organization and Rebirth

    Strengths and Weaknesses of the Organizations as Humans Metaphor

    Conclusion

    Chapter 16 Beginning the Lean Transformation

    Introduction

    The Origins of Lean Operations: Lean Manufacturing

    Potential Pitfalls of Lean

    Organizational Development

    Discipline Building

    What Private Equity Means for Lean

    Conclusion

    Chapter 17 Performing Manufacturing Due Diligence Assessments

    Introduction

    Performing the Assessment

    Employee Satisfaction

    Customer Satisfaction and Perceived Quality

    Corporate Vision and Mission

    Equipment and Facility Maintenance

    Visual Management

    Inventory Management and Product Flow

    Operational Data and Cost of Sales

    Conclusion

    About the Authors

    Glossary

    Index

  • Harry Cendrowski is a 30-year veteran consultant to and investor in private equity and venture capital funds. He is cofounder and Managing Director of Cendrowski Corporate Advisors, a midwest financial and operations consulting firm based in Chicago, Illinois, and Bloomfield Hills, Michigan.

    Louis W. Petro has contributed to Wiley business publications and has written both books and journal articles. He is a professor at the University of Windsor and a CPA.

    James P. Martin is Managing Director of Cendrowski Corporate Advisors. He is a seasoned enterprise risk management professional who has performed engagements for private equity funds and their portfolio companies as well as publicly traded organizations.

    Adam A. Wadecki is Manager of Operations for Cendrowski Corporate Advisors and a lecturer at the University of Michigan, Ann Arbor.

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