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1.0摘要-1.0 Abstract
私募股权基金是一种在新经济形势下的金融创新。它在促进储蓄向投资转化,改善多层次资本市场、降低金融风险、促进高新技术产业发展中都扮演了一个关键的角色。它在美国,欧洲、日本等发达地区已经得到了实际经历的证明。在金融危机之后,私人股本基金显示出了其新特性和新发展。本文将在基础上的界定上去分析私募股权基金几个方面的形式。首先,这篇文章将说明私人股本基金的定义和特点。然后,基于现实,将分析私募股权基金的现状。接下来,讨论几个不同方面投资策略的形成。此外,还将讨论一个特定战略合并和收购。然后,列举一些在澳大利亚私人股本基金下的合并和收购案例。然后本文将提出一些私人股本基金的问题。最后,本研究将讨论双重税收协定和资本弱化规则。
2.0引言-2.0 Introduction
2.1私人股本基金的定义-2.1 The definition of private equity funds
关于澳大利亚私人股本基金的研究-Research On Private Equity Funds In Australian
1.0摘要-1.0 Abstract
Private equity fund is a financial innovation in the new economic situation. It plays a key role in promoting the transformation of savings to investment, improving multi-level capital market, reducing financial risks and promoting high-tech industry development. It has been proved by experience of the United States, Europe, Japan and other developed areas. After the financial crisis, private equity fund shows its new features and new development. This essay analyze private equity funds form several aspects on the basis of definition. Firstly, this essay will illustrate the definition and characteristics of private equity funds. Then, based on reality, it will analyze the current situation of private equity funds in the world. Next, it will discuss the several investment strategies form different aspects. Furthermore, it will talk about one specific strategy-mergers and acquisitions. Then, it will give some cases about merge and acquisition under Private equity fund in Australia. Then this essay will bring up some problems of private equity funds. Finally, this study will discuss the double tax agreement and thin capitalization rules.
2.0引言-2.0 Introduction
2.1私人股本基金的定义-2.1 The definition of private equity funds
The definition of private equity funds can be explained form different aspects. [1] From the view of investment vehicle, private equity fund is a pooled investment vehicle. It is used for making investments according to one of the investment strategies related to private equity. Usually, private Equity Fund is to invest the non-list companies in the form of private equity with the consideration of the future exit mechanism in the process of implementation of transaction. (MVision, 2009) Specifically, the exit mechanism is taking profit by selling shareholdings in the ways of listing, mergers and acquisitions or management buy-back, etc. From the view of investment funds, private equity funds are various types of venture capital fund or industrial investment fund which view non-listed enterprises as the main equity investments. In the broadest sense, it covers the investment of two stages. Firstly, it covers the investment at all stages of Pre-IPO, which are including send stage, Start-up stage, development stage, extended stage, maturity stage and all the other stages of Pre-IPO. The associated capitals, according to the investment stage, may be divided into Venture Capital, development capital, buyout/buy-in fund, Mezzanine Capital, turnaround, Pre-IPO capital (such as bridge finance). Secondly, it covers the post-market investment, such as private investment in public equity (PIPE), distressed debt, real estate, and so on. It's especially necessary to note that the concepts described above have some overlap. In the narrow sense, private equity fund mainly refers to the private investment to the mature enterprises which has formed a certain scale and has generated stable cash flow, and mainly refers to the private investment at the later stage of venture capital, among which buyout/buy-in fund and Mezzanine Capital account for the largest part on the fund scale.
In order to know private equity funds deeply, it is necessary to introduce its features. It can be described as follows: (1) It takes more equity-type investment, and rarely touches on debt investment. (2) The popular organizing form is limited partnership, which has a good form of investment management efficiency, and avoids the double taxation of the state. (3) The investment horizon is longer. (Zwart, 2007) In general, it will be up to 3 to 5 years or longer. So it is long-term investment. (4) It can not be listed for transactions with poor liquidity. (Wright, 2009) There is no ready market for transferor and purchaser of non-listing enterprises’ equity to strike a deal directly. (5) Less transparency. In the term of fundraising, it raises funds mainly through the non-public way or from a small number of institutional investors and individuals. (6) It has a wide range of funding sources, such as Wealthy individuals, venture capital, leveraged buyout funds, strategic investors, pension fund, insurance company, etc. (7) Diversification of exit channels for the withdraw investment. There are three main channels, IPO, sale or M&A, capital restructuring.
2.2现如今世界上私人股本基金的状况-2.2Nowadays the situation of private equity fund in the world
Private equity fund emerged in American in the 1980s. In 1976, three famous investment bankers in Bear Stearns, which was Wall Street's top investment bank. (Stephanie, 2009) Henry Kravis、George Roberts and Jerome Kohlberg set up an investment company in partnership-KKR, which specialized in mergers and acquisitions. This company was the original private equity investment firm. Through the development of almost three decades, private equity funds achieved a rapid development. (Private Equity Intelligence Ltd., 2006)It has become an important vehicle of financing, and it is second only to bank loans and IPO. Currently, it has a large scale, wide range of investment, diverse funding sources and a number of investment institutions. (Clifford, 2007) Nowadays, the global situation of private equity fund can be illuminated as follows:
(1) Achieving a rapid development through the development of almost three decades. It has become an important vehicle of financing, and it is second only to bank loans and IPO. Currently, it has a large scale, wide range of investment, diverse funding sources and a number of investment institutions. According to the data published by PricewaterhouseCoopers and 3i, [2] from 1998 to 2003, the global private equity investment institutions has accumulated to 901.1 billion US dollars, cumulative investment has been up to 683.1 billion US dollars. According to relevant statistics institutions in 2006, the global private equity funds raised to 215 billion U.S. dollars, of which more than 150 billion U.S. dollars went to fund the acquisition-based private equity (buyout funds). In the same year, the global private equity investment fund’s total investment reached 738 billion U.S. dollars, which was doubled in 2005. Blackstone, KKR, Carlyle, Bain, Apollo, Texas Pacific, Goldman Sachs, Merrill Lynch and other agencies appeared frequently in many large scale investment and M&A transactions.
(2) Asia becoming a hot spot and an active area for private equity fund, especially China. According to relevant records, United States, Britain, China, France and Japan are the top five regions of private equity fund. After experiencing a financial crisis, the economic of some countries had been through a recession, whose private equity fund showed some declination. On the contrary, China was showing a rising trend. In recent years, private equity investment in China grows at a rate of more than 200% per year. [3] Foreign private equity funds frequently invested in China in a large-scale, such as Morgan Stanley, Macquarie Global Real Estate Company, Dutch real estate fund. Beside the large-scale, the areas of foreign private funds are increasingly wide, such as real estate, financial services, manufacturing, IT, pharmaceuticals, telecommunications and other industries. In the end of 2006, there have been more than 350 private equity and venture capital firms to invest capital to China market. The total amount has been reached 12.4 billion U.S. dollars.
(3) Turning to traditional industry, public domain products and financial institutions. Firstly, in the past, private equity fund usually invested to industries of IT, health care industry and business, consumer, retail trade. These three parts accounted for 97% of the total investment. However, in the recent, international large PE deals are frequently involved in telecommunications, wine stores and other traditional industries listed companies. For example, Blackstone spent 26 billion U.S. dollars to purchase the second-largest U.S. hotel chain Hilton Hotels Corporation. Canada’s largest telecommunications company BCE was also bought by leading consortium. Secondly, public utility companies, as non-profit organization, attract the attention of private equity fund. In 2007, KKR, the world’s second largest private equity fund firm, acquired TXU [4] with 45 billion U.S. dollars, which is one of the highest public utility companies in American. Finally, once the financial vulnerability appears, even only because of general performance, the financial institutions will face the possibility of splitting and integration. It is aimed at making better use of resources.#p#分页标题#e#
3.0私人股本基金的投资策略-3.0 Investment strategy of private equity fund
3.1私人股本基金的投资策略说明-3.1 Illustration of investment strategy of private equity fund
The basic business processes of private equity fund can be divided into the following steps. Firstly, administrative department contacts with the customer fully and thoroughly. Sponsor of private equity fund is responsible for understanding the nature of customers, the scale of entrusted assets, commission period, prospective earnings, risk tolerance of investment and other special circumstances and requirements. Customers may know the self-confidence, performance history and the managers’ ability of private equity fund management companies by contacting. (Private Equity International, 2006) Secondly, the two parties sign a contract in the basis of reaching a consensus on the investment strategy of private equity fund, this contract will provide for respective rights and obligations. Customers will transfer funds within the specified time. The private equity fund management companies will open a separate account in the bank in the name of the Fund and transfer entrusted funds into special accounts in the agreed date. (Probitas Partners, 2005) Thirdly, fund manager will carry out fund investment and centralized management in accordance with the investment strategy which is written in the agreed fund prospectus. If the customers have some suggestions, they can feedback to managers timely. At the same time, fund managers should provide important information of fund activities to customers, such as submitting investment memorandum and audit reports. Fourthly, when the contract expires or when one investment cycle ends, the assets on the special accounts should be liquidated in order to identify fund managers’ operating performance. Basing on operating performance, it will collect management fees and clear the profit and loss. (David, 2009)
It can be noted that the investment strategy is important to private equity funds. After investing, there are usually two risks: (1) Inherent uncertainty which is determined by uncontrolled elements, such as macroeconomic fundamentals. (2) Moral hazard. To avoid the risks and get more profit, there are some strategies to resort to. Firstly, find companies which can be good acquisition target-companies, including those that be undervalued in the open market, perform badly, or do not achieve their potential. (DePonte, 2008) In addition to involving in the important strategic decisions on the broad level, most private equity funds only invest, and they do not participate in the daily management and operation. So it is essential to pick out good target-investment. Secondly, helping companies improve their performance. The improvement of companies’ performance plays a key role in high return. According to relevant research report, about two-thirds of private equity funds are used to improve the performance, and the risk-adjusted return is double than the average performance. As the owner, private equity funds may assign non-executive director, who have a direct voice on the company operations, management and strategy development, etc. In addition, there are also kinds of strategies in the investment distributions, such as growth capital, real estate project, PIPE, merger and acquisition, bridge financing, mezzanine funds and revitalization funds.
Form the aspect of exit, there are several exit strategies: (1) IPO. The private equity funds will get the investment income by transfer the private equity into public equity to when the invested firms’ initial public offering in the stock market. This is one exit way to achieve capital appreciation, which can ensure the firm’s independence and keep the financing channels in the stock market. It will get high investment returns. At the same time, it has its disadvantages. Firstly, it will take a longer time. Furthermore, it limits the mobility of capital, because the shares can be sold freely in a period after IPO. (Barrett, 2009) In addition, IPO is affected by self-development and capital market conditions. (2) Trade sale. That is transferring the shares to the third party legally to let the private equity funds exit. The relevant date shows that trade sale can get about more than 3 times return, which is second only to IPO exit. (Wright, 2008) It is attractive. On one hand, it can immediately recover the cash or negotiable securities by selling the shares, which can let investors get out completely. On the other hand, it is good for company’s long-term development. (3) It is called Mergers and acquisitions. [5] Some private funds will buy several firms in the industry, and then merge these firms into one independent company with a larger scale to fulfill the integration of industry. Because it will take some time to wait the listing and appreciation, or the firms cannot reach a standard of IPO, many investors will adopt this way to exit. There are two kinds of investors to take M&A, common companies and other venture capital firms. (4) Management buyback. The firm’s management buys the shares back to let the private equity funds out. In fact, management buyback is one exit of merger. The difference is that the buyer is management of firm. The most merit is the firm can be preserved completely. The firm can grasp with more power in initiatives and decision-making.
3.2私人股本基金并购的特点-3.2The characteristic of merger and acquisition in private equity fund
This part will discuss the characteristic of merger and acquisition in private equity fund form the aspects of advantages and disadvantages.
As one exit channel, M&A has its merits. Firstly, in general, merging side will buy the target-company at a higher price, and then the private equity funds can recover the cash rapidly and exit immediately. It can achieve the return on investment in a short period. In addition, there is little or no residual risk. (Ljungqvist, 2003) Secondly, it has a highly flexibility. The whole process of M&A can be controlled. The private equity funds have the right to choose the object with intention, time for sale, ratio and proportion and so on. The process is in accordance with their willing completely and fully. Thirdly, it has a lower cost. On one hand, there is not much more legal regulation and limitation. The private equity funds may exit totally and freely, as long as the parties make an agreement. On the other hand, the negotiation just needs several buyers, not the whole market. In addition, M&A can be used to all kinds and sizes of enterprises, which are not limited seriously. In particular, it is one attractive way to some small firms, or may be the only choice. It is also appeal to the investors. It is also need to say that it can be carried out at every period. Forth, it can get synergies, expand market share, enter into new markets, and extend the industrial chain in the process of withdraw. This also can bring out higher returns.
Meanwhile, M&A has demerits too. Merger will affect the independence of the target company. Firstly, the management of the company may lose the control to the company, and subject to exception. (Morgan, 2009) Moreover, because there are not many acquirers in M&A, it will bring out the problems of asymmetric information. As a result, the firms will face the undervalued situation. As a rule, average rate of return in M&A is not very high, which is only a quarter or one-fifth of IPO. Furthermore, after M&A, the company will face a lot of problems, such as integration and restructure. Unless the private equity funds exit at a time, the firm has to face the hard integration with the acquirer in the gradually process of exit. In this process, two parties of M&A are often out of step on the post-merger integration of the business. It takes time and effort to running normally. To some extent, this causes waste of kinds of resources, and has an impact on the overall economic effects of mergers and acquisitions.
3.3在澳大利亚,在私人股本基金下合并和收购的情况-3.3The cases of merging and acquisition under Private equity fund in Australia
In recent years, under the lead of some private equity fund firms, such as KKP, Australia has become a new haven of international private equity funds. More and more private equity firms bought Australia's large enterprises. At the same time, Australia also encourages private equity fund to inroads into its market. According to <Asia-Pacific 2009 Annual Review of private equity funds>, [6] Australia has attracted 2.6 billion U.S. dollars from 55 companies. In Asian-Pacific region (except Japan), the private equity funds in Australia, accounting for 22%, were second to that of China. Furthermore, most of the private equity funds in 2009 were used in the stage of mergers and acquisitions, so there were many cases of M&A. it can be conclude that mergers and acquisitions, as an exit mechanism and strategy, is very popular in the field of private equity funds. And it is necessary to understand M&A thoroughly. Next, there are three M&A cases to introduce.
3.3.1新桥旗下玛雅的并购(得克萨斯太平洋集团旗下)-3.3.1 The M&A of New Bridge of Myer (owned by Texas Pacific Group)
Newbridge Capital is an well-know investment firm, which established by the Texas Pacific Group and Blum Capital Partners in 1994. Texas Pacific Group (TPC) is a well-known private equity fund in U.S., which has rich experience in private equity fund through the methods of leveraged buyouts, recapitalizations, spin-off, joint ventures and restructuring. As a strategic investor, Newbridge Capital is interested in companies which have a sustainable long-term advantage over their other competitors. It provides financial capital to the firms and makes important contributions to operating businesses of firms to help the firms develop and increase their shareholder value. (Sylvia, 2009) In March 2006, Coles Myer Ltd, as Australia's biggest retailer, indicated that it would sell its owned Myer Department Stores to an investment group at a price of A$1.4 billion (about $10 billion). This investment group included Newbridge Capital and the family members of the founder. Newbridge Capital had the experience of investing in international department stores in the United States and the United Kingdom before. In June 2006, Newbridge Capital bought the 106-year-old Myer from Coles Myer for A$ 1.4 billion, which was far beyond the expectations. And this M&A was seen as a significant milestone for private equity funds entering in Australia with heavy capital. After the acquisition, the private equity funds spent A$370 million (about $320 million) to upgrade its logistics operations and retrofit its retail stores. In September 2009, Myerp Planed to raise capital through IPO. According to the prospectus, it would issue common stock which was up to 499, 500, 000 shares at the price of 3.90 Australian dollars (about 3.38 U.S. dollars) to 4.90 Australian dollars (about 4.25 U.S. dollars) per share. This M&A indicated that because of the 2-year long frozen credit market, private equity fund only had ability to sell the shares which were bought in the boom period of merger and acquisition.#p#分页标题#e#
3.3.2在澳大利亚废物管理领域业务中Brambles和GKN的并购-3.3.2 The M&A of Brambles and GKN in the area of Australian waste management operations
Australia Brambles Group is a leading global support services group, which has a history of 135 years. And United Kingdom's GKN plc [7] is also a famous firm with a history of more than 200 years. After the first joint venture in 1975 to operate CHEP, Brambles and the United Kingdom's GKN plc planed their second joint venture in the waste management sector. In 2001, Brambles acquired and Serviceteam Holdings began to negotiate a merger of their industrial services. Firstly, In April 2001 GKN de-merged the support services activities from its engineering operations and placed them into a new UK company. That is Brambles Industries plc. Following the de-merger, it then combined with Brambles Industries Limited of Australia in a dual-listed company structure, under which they operated as if they were a single economic enterprise while remaining independent legal entities. In this combination, the equity of the firm was split 45 to 55 in the Australian company's favor. After 5 year’s operation, in 2006 Brambles sold Cleanaway Australia and Brambles Industrial Services to Kohlberg Kravis Roberts for about 1,200 Australian dollars. Latterly, it sold Cleanaway UK to Veolia of France in a deal of £651million.
4.0私人股本基金的问题-4.0 Problems of Private equity fund
The private equity funds face some problems too. First of all, the problem of supervision and control is so serious that it had influenced the normal operation. The outbreak of the subprime mortgage crisis placed the problem of supervision to private equity funds in front of the world. Many countries have come to realize that private equity funds cannot be over-permissiveness any more. On one aspect, the characteristics of private equity funds, such as the information is not public, low mobility, high credit risk, and long-time cycle, made the government regulators cannot set up an effective surveillance system. Meanwhile, these characteristics made the market cannot respond timely to take on responsibility of supervision. On the other aspect, the private equity funds involve various departments, whose supervisory responsibilities are not clear enough. So in reality, it is easy to see that some departments are incompatible with other departments. Beside, unclear responsibilities have given chances to some departments to pass the buck to others. This problem will lead to legal disputes and compensation disputes easily. (Cumming, 2009) And then the exit mechanism does not keep up with the market development. The traditional exit mechanism cannot meet the needs of private equity funds any more. The outbreak of the financial crisis, the market changes, and climatic issues, all these elements put forward new demands to the private equity funds. Especially, in the process of the sub-prime crisis, the traditional exit channels have exposed the shortcomings. (Global union, 2007) In addition, there are some other problems, such as privatization and relativization in the operation of private equity funds, lagging organizational forms of the private equity funds, and poor ability to identify the unpredictable market elements.
5.0私募股权基金的国际监管-5.0 The international regulation for private equity fund
There are some issues involve private equity fund in the international regulation which are double tax agreement and thin capitalization rules. As we know, when private equity fund do merging and acquisition, especially international merging which concern two countries’ tax system. Therefore, double tax agreement is to identify the tax jurisdiction. Secondly, private equity fund financing by debt to merging and acquisition, every country have different regulation for private equity fund. Generally, America did not set special tax law for private equity fund financing; Britain did not set any limitation for leverage financing. According to Britain financial regulation feedback statement, suggest that every half year have to investigate amount of private equity fund financing.
5.1资本弱化规则-5.1Thin capitalization rules
As what has been mentioned above, private equity fund financing by debt, therefore, the debt could be tax credit and the debt will transfer to target company that investors could reach effect of tax avoidance. Some of countries trying to prevent this mechanism of tax avoidance; the countries set the anti-thin capitalization rule, for example, American tax law NO.5 states that the company loan to subsidiary, when the interest is tax free, the interest fee cannot seems as expenses to avoid tax(Georg, 2008). Furthermore, American tax law regulate that the debt equity (DE) ration maximize is three to one. On the aspect of Australia, the Australian government has many experiences to dealing with thin capitalization rule. Base on the tax law from the 1987 (Australian tax office, 2002) states that there is not allow Australian tax payer pay excess interest fee to foreign company the excess interest fee cannot be business operation expenses. However, generally, before private equity fund doing merging and acquisition, private equity fund will assess tax climate in target country to avoid investment gain dilution.
6.0结论-6.0 Conclusion
In conclusion, on the basis of illustrating the definition and characteristics of private equity funds, this essay discuss the situation, investment strategy, and problems of private equity funds. After thirty years’ development, private equity funds have stand to investors’ attention increasingly and deeply. There are several investment strategies in the process of exit, such as IPO, Trade sale, M&A, and capital restructuring. And it is essential to select a good strategy in the light of the circumstances. M&A is a good exit mechanism to choose. Just like other exit channels, M&A has its own merits and demerits. The private equity funds must make full use of advantages and avoid the drawbacks. To get further understand of M&A, this essay made some case study on M&A in Australian. At last, to make a fully understand of the situation, this essay find out some problems of private equity fund, which influence its future development, such as problems of supervision and control, lagging exit mechanism and privatization in the operation.
7.0反思-7.0 Reflections
When I choose this unit, I expect to learn tax knowledge and international tax issue of merging and acquisition. In my position, I found that I learned this unit knowledge more than I thought. Because I still cannot forgot professor tech us to see the thing, not just only one side, there is another side existed. Because usually I always focus one side, and did not notice there is another side which can reflect my shortcomings. Therefore, that’s why I learn more things than I expect. Moreover, Professor Hope using much diversity teaching style which made me (international student) easier to understand this tax issue, there are a lot samples used during the class, it made this unit more interested. When I doing this project, the professor show me different viewpoint, it made me more clear how private equity fund to operate and how to tax private equity fund. Finally, in the end of this study, this unit and Professor Hope not only help me to understood tax issue but also teach me a lot different study skill.
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