Advanced Topics in Private Equity - Wharton MBA Course Overview

Class Structure

• Taught by Professor Dan Zberman, Global Head of Capital Solutions at Warburg Pincus
• Focus on an actual deal: Warburg's acquisition of the Mutual Fund Store in 2011
• Guest speakers including industry leaders from Helman & Friedman and Centerbridge Partners
• Course includes:
  • Management presentation from the former CEO of the Mutual Fund Store
  • Due diligence process with data room access
  • Financial modeling (LBO, DCF, comps)
  • Simulated investment committee presentation

Key Lessons Learned About Private Equity

1. Returns and Exit Multiples

   • 60% of returns may simply come from rising exit multiples, not just skill in financial engineering or operations.
   • Self-awareness about the unpredictable nature of investment returns.

2. Dry Powder and Investment Quality

   • PE firms may make average investments to avoid returning unspent capital to investors.
   • Importance of understanding carry (profits from investments).

3. Carve-Out Acquisitions

   • Carve-outs (e.g., a large company selling a division) can be valuable as they require focused management and resources.
   • These opportunities are less common than full company sales.

4. Due Diligence Importance

   • Never get emotionally attached to a company; thorough due diligence is critical.
   • Real-world due diligence involves extensive analysis, discussions with stakeholders, and can be costly.

5. Financial Model Realities

   • Financial models are inherently flawed and will always be wrong to some extent.
   • Important model drivers include a large Target Addressable Market (TAM) and high margins to cushion against uncertainties.

Overview of the Financial Model Built for Class Project

• Model included assumptions, operating model (financial statements), LBO analysis, and DCF.
• Emphasis on the thoroughness of diligence feeding into the model.
• Groups in class assumed the Mutual Fund Store was a great investment, but post-acquisition revealed unforeseen issues.

Additional Opportunities

• Wharton offers a Private Equity Certificate Program in collaboration with Wall Street Prep, taught by PE professionals.
• Course covers: PE deal process, valuation, and thinking like a PE professional.
• Enroll using code "rare liquid" for discounts.

Conclusion

• The unpredictability of investments highlighted by real-world outcomes post-class experience.
• Encouragement to explore other classes and educational resources for MBA aspirants.