The keys to understanding the world of Private Equity

Private Equity, also called ” Capital Investment “, participates in the financing of companies not listed on the stock market.

Do you want to work in Private Equity, raise funds for your business or invest in unlisted companies?

Discover this investment practice rooted in the real economy through an exclusive interview.

Yassine Rochd, founder of the finance training organization Invest Prep, tells us more about Private Equity.

The keys to understanding the world of Private Equity

Private Equity is an exciting profession that is at the heart of the challenges of growth, financing and support for companies.

Can you tell us about your background?

My name is Yassine, I graduated from the Master Finance of TBS Education. During my school career, I was responsible for the Customer Relations department at ESCadrille Toulouse Junior Conseil before doing my gap year in finance.

So I did a first internship at HSBC in Leveraged Finance then another at bpifrance in Private Equity. It was then that I became interested in the job and wanted to do my end-of-study internship again in Private Equity at 123 IM. I extended this experience on fixed-term contracts with them before joining EY ( ESCadrille won the EY award for Best Consulting Study 2022) as a senior consultant in business valuation and financial modelling.

After 2 years in the firm, I returned to Private Equity at bpifrance before dedicating myself 100% to the development of the finance training organization Invest Prep, which notably supports students in preparing for Private Equity interviews.

What is Private Equity?

Private Equity is investing in companies that are not listed on the stock exchange.

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Indeed, some unlisted companies have relatively large financing needs to carry out their growth projects. They will therefore turn to private equity players ( investment funds ) who will invest in some of these companies. Those with the best growth prospects. In exchange for this investment and the cash brought to the company, the fund will acquire shares in the capital of the company and therefore become shareholders of the company.

The objective is to keep these shares of the capital for a period of five to eight years before reselling them and realizing a capital gain on the investment.

The keys to understanding the world of Private Equity

To achieve this objective, Private Equity funds are not content with investing massively, they will also follow the company, accompany it and advise it in the major phases of its development.

How does a Private Equity fund work?

A Private Equity fund will itself raise funds from private and institutional investors wishing to invest part of their assets in the financing of unlisted companies.

After building up its pockets of cash to invest, the fund will be able to study investment opportunities. Thus, it will seek to retain only the most promising in order to maximize their development and at the same time offer an attractive return to investors.

The keys to understanding the world of Private Equity

In addition to this mode of operation, which is specific to all funds, there are several segments in Private Equity, in particular:

  • Venture Capital (also referred to in English as Venture Capital or by the acronym VC) which consists of investing in start-ups . VC funds will generally invest smaller amounts and retain minority stakes in start-up capital.
  • Capital Development and Capital Transmission are aimed at more mature companies ( SMEs and ETIs or even Large Caps ). These companies have a longer history and therefore present a risk-return ratio different from that of VC.
  • Turnaround Capital is a somewhat separate segment which aims to take significant shares of the capital of companies encountering financial difficulties. In this case the funds will be very involved in the strategy and the decisions of the company.
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Can you explain to us the interest for a company to raise funds?

There are several interests in fundraising.

Contact ESCadrille Toulouse Conseil for the realization of a business plan which will accompany your request for fundraising with the various financial actors.

The first, which is also the most obvious, remains the contribution of capital to develop the company and carry out growth, recruitment, inter ization, etc., projects.

The second, which remains linked to the point we have just seen, is a little more technical since it concerns the company’s capital structure.

Some companies will not be able to raise debt from banks because they are already indebted, or seek financing that would lead to certain solvency ratios being exceeded. They will therefore have to strengthen their equity before they can take out new debt.

To make an analogy with the purchase of an apartment, in certain situations, the funds raised from Private Equity players will have the same weight for bankers as the contribution that an investor would make before contracting a bank debt. and buy a property.

Finally, a large part of the role of the investor is to follow the companies in which he has invested. This requires support for managers , financial and strategic advice but also, when possible, networking and access to the address book of members of the Private Equity fund.

Is there a typical day when working in Private Equity?

Not really, I would be talking more about a particular cycle in investing. Generally, when a new investment target is identified, a trading phase takes place. In particular, we will seek to understand the activity of the company, its financial situation , its positioning and the purpose of the operation it is considering.

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The keys to understanding the world of Private Equity

Once the file has been examined, we can already make a first filter to keep the files that fit into the strategy of the investment fund. We will then be able to go further in the diagnosis of the company, its market, its financial fundamentals. The investment team will make financial projections and seek to calculate the profitability of the investment over a period of at least 5 years .

If the results of this diagnosis are conclusive, certain key subjects are explored through audits and financial, social and legal Due Diligences , an investment offer is formulated and then the entry into the capital is contractualised.

What path should I take to work in this sector? Is this a job accessible after a master’s degree in finance?

The classic educational path to join an investment fund is indeed a master’s degree in finance from a major business or engineering school. But that is often not enough.

The profession is demanding and investment funds have very selective recruitment processes. Business analysis, financial modeling and the legal and tax issues surrounding the transaction are all points on which candidates interested in this profession must work.

It is also a profession that attracts many students and analysts because it allows people to discover ambitious entrepreneurial projects . It also makes it possible to touch on numerous criteria for analyzing the company ( market, strategy, finance, operational, etc. ).

It is precisely to help candidates in their preparation that I decided to launch Invest Prep . Private Equity training includes technical interview questions and Excel modeling cases. It also returns to the understanding of the profession but also the subjects of accounting, corporate finance and legal essentials to the realization of the profession.

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Call on ESCadrille for your project!

If you want to start your business , obtain financing or even have financial advice . ESCadrille Toulouse Junior Conseil can assist you in the creation of Business Plans.

It is essential for us to provide a service adapted to the projects of our customers and to accompany them to build the project of their life.