MBA Students Gain Real-World Insight in Private Equity Finance
ANN ARBOR, Mich. Students in David Brophy's private equity finance course at the University of Michigan's Stephen M. Ross School of Business are hunting for treasurea public company with the potential to generate wealth if it were acquired and transformed into a private company.
In their search for a promising public-to-private play, they are poring over corporate reports, sifting through financial data, and evaluating companies' cultures, operations, management, and competitive strengths and weaknesses.
These Michigan MBA students also are competing for a chance to convince a $950-million private equity firm they have uncovered an opportunity that merits a multimillion-dollar investment.
That firm is Glencoe Capital
(www.glencap.com). Its chairman, U-M alumnus David Evans, visited Brophy's private equity finance class (Finance 624) last month to instruct students on what to look for in a prospective target for a private equity buyout.
A successful candidate for such a transaction, he said, often is a profitable but stagnant company in which investors can identify a clear path to revitalizationsuch as the overhaul of inefficient manufacturing processes or the repositioning of an underachieving product.
In some cases, the value of a company is unlocked when it is acquired and merged with another firm to create synergies or savings. Evans also advised the class that private equity firms typically want to retain a company's management, so it's important to select a firm with effective executives and craft a deal in which they will stay on board.
Each four-student team is identifying a company for a public-to-private conversion, compiling a detailed analysis, developing an investment thesis, and creating a capital structure for the deal. They will submit "pitch books" detailing their proposals on Dec. 6 and make presentations to a judging panel on Dec. 10.
The two teams demonstrating the strongest strategic vision will travel to Chicago on Dec. 15 to deliver 90-minute presentations to Glencoe Capital's investment board.
"Going in front of others and justifying your ideas is a potentially humiliating experience, but it's also enormously valuable. It makes you a better investor," Evans said. "They'll learn what it's like to go in front of an investment committee. I don't know how you get better preparation than that."
"They'll be getting insights that are beyond price," added Brophy, director of the Center for Venture Capital and Private Equity Finance at the Ross School.
The teams also will take home scholarship money. The four members of the winning team, as selected by the Glencoe investment board, will receive $1,875 from an annual scholarship established 13 years ago by U-M alumnus Alan Gelband, president of the New York investment-banking firm Alan Gelband Company Inc.
(www.gelband.com). Members of the second-place team each will receive $625 from the scholarship.
Gelband said the buyout competition is an ideal fit for his scholarship, which was established to support business students engaged in "real-world" learning experiences.
"This competition is terrific," said Gelband, who also addressed Brophy's students last month. "It gives you the rigor to see how private equity and the stock market really work. This is a very good introduction."
The project also is valuable for the teams that aren't selected to deliver their pitch to Glencoe, he said.
"Everyone in the competition will learn a lot," Gelband said. "They'll gain experience in the way private equity people think. They'll get real-world insights you can't get any other way."
The competition gives MBA students an opportunity to flex their analytical abilities, defend their ideas, and evaluate their interest in a career in private equity finance, said student Chris Weil.
"You're put in a real-world situation and required to put the skills you're learning into practice," he said. "That's very exciting."
Evans said he is contributing his time and his company's resources to this project out of gratitude for his Michigan education and the support he received from Brophy when he was a student.
"If I live to be 120, I will never be able to repay the University of Michigan for everything it's done for me," he said.
Brophy's private equity finance course has been offered at the Ross School of Business since 1983 and has been taken by more than 2,600 MBA students.
Written by Dave Wilkins
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