Preface xvii MODULE I The Private Equity Model and Historical Information CHAPTER 1 Introduction to Private Equity 3 Introduction 3 What Is Private Equity? 4 General Terms and Brief Overview 5 The Limited Partner Agreement and General Partner Incentives 12 Private Equity Firm Structure and Selected Regulations 15 Types of Private Equity Investment 20 The Private Equity Fundraising Process 22 Recent Fundraising Trends 25 General Partner Investment Restrictions 26 Conclusion 28 Notes 28 CHAPTER 2 Overview of Historical Trends 29 Introduction 29 A Brief History of Private Equity 29 Private Equity at the Turn of the Century 33 Venture Capital Investment and Returns by Fund Stage 39 Venture Capital and Buyout Returns by Fund Size 43 Secondary Funds 45 Conclusion 48 Notes 48 CHAPTER 3 Trends in Private Equity 51 Introduction 51 A Changing Tide 51 Overall Industry and Fundraising Trends 54 Selected Regulatory Changes and Proposals 60 Rise of Strategic Buyers 64 Conclusion 66 Notes 66 CHAPTER 4 Harvesting Private Equity Investments Through Initial Public Offering 69 Initial Public Offerings 69 Basics 69 Initial Steps in the ''Going Public" Process 72 Role of the Securities and Exchange Commission and State Policing Bodies 75 Post-IPO Underwriter Responsibilities 77 Registration Documents 78 Historical Trends 79 Summary 83 Notes 83 CHAPTER 5 Legal Considerations in Initial Public Offerings 85 Introduction 85 Initial Public Offering 86 Introduction 86 Potential Advantages 87 Potential Disadvantages 89 Advance Planning Opportunities 91 Selection of Advisors 91 Securities Counsel 92 Accountants 92 Underwriters 93 Corporate Housekeeping Matters 93 Antitakeover Provisions 93 Management 94 The Initial Public Offering Process 94 Principal Parties 94 Principal Documents 96 Selling Security Holder Documents 98 The Registration Process 100 Possible Liabilities Faced by a Company and Its Directors and Officers 102 Liabilities under Federal Securities Laws 102 The Sarbanes-Oxley Act and Dodd-Frank Act 105 Public Company Filing Obligations 107 Initial Public Offering Alternative: Reverse Mergers 107 Advantages 107 Disadvantages 108 Conclusion 109 CHAPTER 6 Harvesting Investments Through Mergers and Acquisitions 111 Introduction 111 M&A Basics 111 Types of Takeovers 112 Reverse Takeovers 113 The Takeover Process and Financial Advisor Selection 114 Analyzing Potential Buyers 115 The Sale Process 116 The Bidding Process 118 Reaching an Agreement 119 Historical M&A Trends 120 Conclusion 122 CHAPTER 7 Legal Considerations in Sale Transactions 123 Introduction 123 Sale Transactions 124 Prior to the Sale Transaction 124 Use of an Investment Banker 124 Marketing Process 125 Due Diligence 125 Negotiations Phase 125 Key Deal Issues 126 Valuation and Pricing Issues 126 Special Issues in Sales of Private Equity Fund--Owned Businesses 132 Sale and Acquisition Structure 134 Merger 134 Asset Purchase 135 Stock Purchase 135 Employee Incentive Issues 135 Cash Retention Bonus 135 Stock Bonuses 136 Recapitalizations 137 The Sale Transaction Process 137 Letter of Intent 137 Disclosure of Acquisitions 138 Time and Responsibility Schedule 138 Definitive Agreements 139 Necessary Consents 140 Conclusion 142 CHAPTER 8 Intellectual Property and Private Equity 143 Introduction 143 Intellectual Property Rights and Remedies 143 Patents 144 Trademarks 146 Copyrights 147 Trade Secrets 148 Pre-Acquisition Due Diligence 149 Established Barriers to Entry--Evaluating Investment Value 149 Freedom to Practice--Assessing Risk of Proposed Acquisition 151 Creating Intellectual Property Value During Management 152 Leveraging and Monetizing Patent Rights 153 Bolstering Technological Advantages 153 Boosting Brand Development Efforts 154 Preserving Knowledge-Based Resources of the Workforce 155 Positioning the Exit--Reverse Due Diligence 156 Minimizing Exposure of R