Tag Archives: Acquisition

Brooke Coburn of Carlyle on Middle Market Investing

August 18, 2015 By in Executive Insight, Asset Management Tags: , , , ,
Brooke Coburn of Carlyle on Middle Market Investing

My co-author this week is Brooke Coburn, Managing Director and Co-Head of Carlyle Growth Partners and Carlyle Equity Opportunity Fund.

The Carlyle Group is one of the largest and most successful alternative asset managers in the world. With nearly USD 200 billion in assets managed across 130 funds and 156 fund of funds it is daunting just trying to figure out where to start in learning from their best in class experience. I decided to approach the middle market team and highlight their story as, I believe, investors in the Middle East can learn the most from their approach and experience.

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Investment Valuation Lessons III: Discounted Cash Flows versus Peer Group Comparison

April 29, 2015 By in Investments Tags: , , ,

The debate of whether discounted cash flows or peer group comparisons are the better business model has raged ever since M&A became vogue. Let me put an end to the suspense right now: both are useless as effective valuation tools. Let’s find out why and what might work.

Discounted Cash Flow

The problem with discounted cash flows (DCF) is the sensitivity to a large number of parameters especially since DCF is usually used to predict high-growth. It is hard enough to predict the future performance of stable businesses. Trying to predict the performance of companies in a growth phase is indistinguishable from guessing.

So how should you go about valuing the company that is about to go into a high-growth phase? The short answer is you use a value based on the scenario that the company continues as is. In other words the high-growth is as much a result of your cash as it is of the company’s business. Therefore the growth phase piece should be treated as if it is a complete start-up where everything is valued at book value and therefore there is no premium on the current business.
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Investment Valuation Lessons II: Value Attribution

April 27, 2015 By in Investments Tags: , , ,

An interesting phenomenon is when investors agree on valuation but incorrectly attribute the source of the valuation. The result is that incoming investors or buyers of the firm end up paying the sellers for value that the buyers create.

A common occurrence is when a start-up sells out to a major player, especially in the services industry. Imagine that there is a local start-up, which we will call Triangle, sells a particular service offering into the market.

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Investment Valuation Lessons I: Equity Dilution

April 26, 2015 By in Investments Tags: , , ,

Valuation techniques and methodologies are usually taught within the context of developing a financial model or using comparative ratios. In real life the actual decision makers might use the output of these models but will not be the ones who develop the models. Decision makers will also be influenced by other factors, not all of which are rational.

I have seen many examples of this and there are certain repeating patterns that are worth examining. In this post I will concentrate on how equity dilution leads to misperceptions and mistakes.

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My Zawya Story: Acquisition Negotiations

October 23, 2014 By in Private Equity, Negotiation Tags: ,

This post is part of the My Zawya Story series.

In my Origins post I set the stage for the start of discussions between Zawya, led by Ihsan Jawad as CEO, and Saffar, led by myself as CEO, for some form of cooperation. Supporting me in my negotiations were two of the directors of Saffar. Ihsan was supported by one of his co-founders, Husain Makiya.

Zawya needed funding, and Saffar had money to invest. But this was not a pure financial play for Saffar. Saffar had a long term strategy and a data & information company, which it was already building, formed the foundation of this strategy. As such Saffar decided that they must take majority control of the equity if they were to invest. The complicating factor in relation to Zawya was that due to the bursting of the internet dot-com bubble funding was tight and the founders of Zawya were faced with the proposition of having to issue far more equity then they originally planned with the prospect that they would have to relinquish control.

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My Zawya Story: Origins

October 22, 2014 By in Private Equity Tags:

This post is part of the My Zawya Story series.

In the second part of my Zawya story I build on the initial introduction and talk about how I got involved in the information and data business as well as how I identified Zawya as an asset.

In 1999 I invested in an IT services company and the founder invited me to the board of directors. Although this company was showing a positive P/L trajectory, the cash flow from operations was quickly deteriorating. As the board member with the only experience in financial statement analysis I investigated the issue. I traced the cash flow black hole to a pair of financial websites, Saudi Finance and Middle East Markets, that were being developed and maintained by the IT company on behalf of a client. Although the IT company was spending cash on the project, cash from the client had stopped. Continue reading →