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News & Events

Private Equity Uncovered: Experts Address Buyout and Venture Capital Trends

3/1/2004 - Last week more than 350 MBA students, alumni, faculty and private equity professionals converged for the fifth annual Private Equity Conference at the Kellogg School of Management. Keynotes were provided by two of the most prominent executives in the private equity industry, Prakash Melwani, senior managing director at the Blackstone Group, and Promod Haque, managing director at Norwest Venture Partners. Remarks by Mr. Melwani explored later-stage buyouts while Mr. Haque discussed the state of venture investing. Both executives appeared optimistic about the future of the asset class and their ability to create value despite a significant overhang of capital.

According to Mr. Melwani, the magnitude of competition for deals in the middle-market space will prevent all but the best firms from creating acceptable risk-adjusted returns. Although Mr. Melwani expects middle-market fund raising to be more responsible in 2004, he suggests that at least half of all middle-market firms will disappear over the next several years. Because the market for large deals is far less crowded, the "mega-buyout deals" in which Blackstone traditionally participates, represent a real competitive advantage with respect to deal competition and deal sourcing.

As is the case with many of the large private equity firms, Melwani explained that one of Blackstone's greatest challenges is finding ways for its portfolio of investments to work together to reduce their cost structure though joint purchasing and cross fertilization of best practices. Since the benefits of a streamlined approach are enormous, many of the largest firms are currently addressing this challenge through outsourced consulting, in-house consulting or alternative options.

The changing nature of venture capital investing in post-bubble 2004 served as the backbone of Mr. Haque's discussion. Haque believes this is great time to invest in start-up companies however the discipline imposed on these companies represents a dramatic shift from the heady internet days. Early stage companies must be capital efficient with total funding requirements of up to $20m. This is in contrast to many of the larger hardware successes of the past which required significantly more amounts of capital to reach liquidity. Mr. Haque concluded that reduced exit multiples are a primary driver of this need for more capital efficient business models.

The 2004 Private Equity Conference featured expanded programming with panels focused on distressed investing, media investing and entrepreneurship. Professor Linda Darragh served as the featured speaker during the alumni breakfast, attended by private equity professionals and members of the Kellogg Alumni Club of Chicago, and addressed the exciting efforts currently underway to enhance the curriculum and support for Kellogg students interested in entrepreneurship.