Housing Giants - January 15, 2009 - (Page 6) m&a By By Michael P. Kahn, Michael P. Kahn & Associates 7 essential tips to manage tHe private equity maze Navigating the world of private equity requires a few basics. Here’s a guide to getting prepared. As we kick off 2009, I’d like to outline how you can personally navigate the private equity maze and get to the finish line. It might feel daunting, but these guidelines will help. Here’s wHat you sHould do: don’t be afraid to try. There are all sizes and flavors of private equity groups looking for investment opportunities. The only way you will find out if you qualify is to put your investment opportunity in front of them. Although the larger funds have minimum dollar investments and can be more than one project, there is always “Country Club Money.” All of you have potential investors in your community who know you, trust you, are convinced you are smart and know your business; if they’re presented the right opportunity and structure, they’ll jump at the chance of earning greater than CD rates if they feel comfortable with the risk profile. tomorrow’s — absorption projections and pricing, and run your projection analysis flat — don’t project price increases or higher absorptions. Make sure you are aware of and consider negatives, such as projected job losses in your area, and deal with them directly in your narrative. Include an IRR calculation for the investment. Private equity groups live and die by IRR calculations. If your investment opportunity is approved, the first tranche will have the cheapest cost. If you are overzealous and your monthly financial reports show you’re not delivering the projected results, and you find your original capital requirements will not cover your capital requirements, any additional funding granted will be at a much higher cost. 3. be totally transparent. Make sure everything — the good, the bad and the ugly — is out on the table for your investor to see. Make sure there are no surprises when the investor personally diligences or hires a qualified expert consultant to review your project and projections. Be prepared with facts to defend your investment thesis. 1. 4. be prepared to give up some control. Except for “country club money,” private equity will want to have a say in how the projects or business is being managed. They will not want to manage your business or secondguess you. If they have any doubts as to your organization and management skills, they will not invest with you. At the least, they will want a seat on your board and may even want voting control over the entity used just in case you are not performing as MOre by MIcHAel P. KAHN you projected. Missing projections a month or two Missed Michael’s last column? won’t have your partners looking for the nearest Read it in the Nov. 10, 2008, bridge to jump off, but missing them for a quarter edition of Housing Giants. or more might have them starting to ask questions as to whether you are managing well. 2. be ultra-conservative witH your projections. Under-promise and be prepared to over-deliver. Make sure you use today’s — not yesterday’s or 06 1.15.09 HOUSING GIANTS www.HousingGiants.com http://www.mpka.com/Home.aspx http://www.nxtbook.com/nxtbooks/reed/hg_20081110/#/0 http://www.HousingGiants.com
Table of Contents Feed for the Digital Edition of Housing Giants - January 15, 2009 Housing Giants - January 15, 2009 Contents Viewpoint News & Moves M&A The New Administration Housing Giants - January 15, 2009 Housing Giants - January 15, 2009 - Housing Giants - January 15, 2009 (Page Cover1) Housing Giants - January 15, 2009 - Contents (Page 2) Housing Giants - January 15, 2009 - Viewpoint (Page 3) Housing Giants - January 15, 2009 - News & Moves (Page 4) Housing Giants - January 15, 2009 - News & Moves (Page 5) Housing Giants - January 15, 2009 - M&A (Page 6) Housing Giants - January 15, 2009 - M&A (Page 7) Housing Giants - January 15, 2009 - The New Administration (Page 8) Housing Giants - January 15, 2009 - The New Administration (Page 9) Housing Giants - January 15, 2009 - The New Administration (Page 10) Housing Giants - January 15, 2009 - The New Administration (Page 11) Housing Giants - January 15, 2009 - The New Administration (Page 12) Housing Giants - January 15, 2009 - The New Administration (Page 13) Housing Giants - January 15, 2009 - The New Administration (Page 14)
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