The Private Equity, a market with strong growth driver - part II

The Private Equity, also known financing LBO (Leverage Buy-Out) groups for its funding and leveraged acquisitions of target companies, usually mature companies with strong growth potential. LBO funds - often associated with managers of the target - develop installation and operation of acquisition of the company with the objective to remain the capital of the latter ideally between 5 and 10 years while significantly improving the result of the business recovery. The solutions for output or funds are then variables: initial public offering, taken over by another fund, an industrial sales ...

Born in the USA, in the 60's, with the purchase by McLean Industries Inc.. Waterman Steamship Corporation, this type of acquisition has been truly popular in the '80s under the aegis of funds such as KKR who have made significant transactions in the image of the acquisition of RJR Nabisco for more 36 billion dollars (which was then the first landmark LBO). The event was followed by a steady evolution for twenty years, but no relation to the recent explosion.

This momentum is the result of a combination of several positive key factors. The first of these is an abundance of liquidity in financial markets. Attracted by high yields (15-16% on average), liquidity providers (banks and insurance institutions, pension funds and private wealth) do not hesitate to fill the capital market allows investors to raise funds more increasingly important. Direct consequence, the number of LBOs has increased but more importantly, the number of very large transactions (over one billion Euros. SMEs are no longer the only target of LBO financing transactions, large groups of interest to certain funds, particularly in terms of business management. So after the frenzy of acquisitions recorded in recent years, these groups now intends to liquidate their related activities generate higher margins.

The Private Equity, a market with strong growth driver

Private Equity market has been experiencing four to five years an unprecedented dynamism. The figures for 2006 speak for themselves:

* 71% growth in business volume in 2006

* 71 billion of funds raised in 2006 or 22% over 2005

* 208 LBOs carried out in France in 2006, with two thirds of companies less than 100M € turnover,

* 1.5 million people now work for a company in France came under LBO, 9 to 10% of private sector employees,

Private equity is one of the five main areas of activity of the market says private equity (intervention in the capital of unlisted companies generally to achieve horizon 3-10 years of strong capital gains), other activities are:

* Seed capital (or seed money) which represents the first stage since it is for investment projects still in its infancy, funded in order to develop a technology still in R & D to enable to go forward to a potential market,

* Venture Capital, also known as the Venture Capital (VC), which translates into a capital in innovative companies, being in the early stages of development and which have a high growth potential but also a very high risk,

* Capital development which is a capital contribution in companies with strong growth but at a more advanced level of development that target companies for venture capital, they are usually companies who have strong financing needs through equity,

* Capital reversal of investing in troubled companies to put in place a recovery plan.

The variations in multi- channel strategy

The challenges of a multi-channel strategy are varied:

* Analyze the appetite canal of each client to use the appropriate channel.

* Update in real time all the information collected on the client and actions taken by the various channels.

* Provide a customer reference and not a contract or agency and reference different keys depending on the location of the system where you enter.

* Reorganize the network with the integration of multi-channel approach.

* To improve reception and increase the return rate to increase the effectiveness of campaigns.

* Controlling costs for greater profitability: to avoid cannibalization of a channel with one that would raise the cost of distribution for an identical volume of business.

The most delicate issue is to control the consistency of the channels. Indeed, the proliferation of channels only reinforces the risks associated with direct marketing campaigns: a campaign will generate even more inadequate for dissatisfaction it has been sent two or three times through multiple channels. Each pipe has its constraints that can undermine the effectiveness of a marketing campaign. The combination of more channels and interactivity allow them to circumvent these risks. To do this, the use of multi-channel increases the requirement on the supply, logistics, commercial pressure campaigns, performance monitoring and adjustments as well as organizational, process information system.

In conclusion, this multi-channel strategy, which appeared some years ago, remains in the crosshairs of the current issues. We have well established the online insurance cyber banking and have not had the desired penetration in the market. The trend can still be reversed and for the moment, many drivers have yet to be exploited:

* Messaging customized web portals of all institutions,

* The design of targeted advertising based on the behavior of the user,

* Improved tools subscriptions on the Internet and telephone (secure sites: electronic signature ...)

* Agency home with the setting up of terminals advisors.

A Vector of Innovation

The French are increasingly using more online banking with nearly 60% of Internet users who visit the website of their bank. Despite this, the agency remains the focus of customer relationship: 27,435 bank branches were recorded in France at the end of 2006, more than 1,000 additional branches in two years. Also, the banking and insurance from a distance, 100% online, limited for now to a few organizations: foreign banks, some credit institutions and insurance so it is important to link the distribution channels.

Personalize the communication and efficient use of distribution channels following the logic of process costs and customer value is the major axis of a multi-channel strategy. Depending on the objectives, policies can be differentiated.

In this logic, combinations client use x x channel are put forward to maintain the equivalence between the link type of transaction / channel and the link type of customer / channel.

Whatever the entry point used by the client, processes are implemented, depending on the task at hand to guide the client to the appropriate channel in terms of palatability and cost (programs incentives such as offers for online subscriptions).

In addition, indirect methods largely complete the distribution of offers and services such as the Broker (TV operators), the network affinity (automobile association for insurers) and the General Agent as an extension of networks of insurance agencies.

Current Status And Challenges of STP and Asset Managers Part.II

The new drivers of STP - the regulatory and standardization work at European level:
The Giovannini Report in 2003 pointed to weaknesses of the RL at European level concerning cross-border transactions. Regulatory works to address them are underway. They will lead to harmonization of cycles RL (and therefore a shortening of RL in some places), and impose a uniform technique, the different tax and legal depositories (CSD) Europe.

MiFID requires the tendering systems RL Europe, in the fall of 2007. The current model of a settlement made systematically at the CSD in the country of the title, lived. If they want to benefit from the introduction of competition, the players in the securities business (especially the trustees) will have to upset their traditional organization into streams.

Finally, Target 2 Securities project proposes the establishment of a European central depository, in 2012. Current European CSDs will have to focus primarily on the functions of overall conservation (settlement being provided by the system TS2), where they will find themselves in competition with the traditional custodians.

In other words, industrialization goes into high gear. For asset managers, the challenge is twofold: make the most of the opening to competition, and ensure the levels of STP always higher.

Set up middle office function common to different managements (conventional management, alternative investments) and various subsidiaries (foreign, for example) are, for large asset managers, an opportunity to reduce costs and increase operational efficiency. It is also a way to refocus the subsidiaries of their management activities.

Finally, some will choose outsourcing middle-office function. Bet that the trustees, in competition with the CSD in the field of conservation, will benefit from their proximity to the asset managers to develop the services of this type.