Private Banking Marketing

Palamon Capital Partners/Team Systems SpA
Submitted by Janne Veitch

1. What is private-equity investing? Who participates in it and why? How is Palamon positioned in the industry?

Private-equity investing involves investing in companies that are privately held and therefore do not have access to public capital markets. Initial investments are structured by private-equity funds, whoraise capital from investors such as private individuals, pension and corporate funds and endowments that are looking for more attractive risk/return investments. Generally investors are looking to take advantage of more “inefficient” investment opportunities.

The industry can be segmented into three sectors: Venture capitalists make the initial investment in start-up companies. This is highrisk investing as the companies often have no track record, either financially or with regard to market credibility. The second type of private equity investing is termed generalist and involves the provision of expansionary funding, or ongoing funding to existing companies. Generalists are looking to position the company to go public at a later date. The third type of private equity investing isleveraged buy-out. With leverage buy-outs, private equity investors are looking to finance acquisitions of pre-existing companies that have the capacity to take on debt and make radical improvements in operations.

Palamon is a generalist private equity fund focusing its activities on small to mid-sized European companies. With funds raised of Euro 440 million, they are fairly well placed tocompete with competitors such as Duke Street Capital and Mercapital.

2. How does private-equity investing compare with public-market investing? What are the similarities and the differences between the two?

Private-equity investing is similar to public-market investing in the sense that both involve the purchasing of a stake in the company in the anticipation that the company will grow andprovide positive returns. However, private-equity investing does fundamental differ from public-market investing in several ways:
• Private-equity investing is higher risk as many of the companies do not have established track records, and are not required by regulation to provide updated financial information (as opposed to companies registered on the public capital market). Higher risk istaken based on the anticipation of greater rewards, in particular if the company goes public.
• Investors in private-equity are looking to often acquire a controlling stake and are actively involved in structuring and management of the company. This is directly opposite to public market investing where investors are generally not purchasing controlling stakes and will have no say in the waythe company is management, apart from the ability to exercise voting rights for board member appointments.
• Investments in private-equity are illiquid so once an investment is made, it is difficult to exit. This is opposite to public market investing where stocks can easily be bought and sold through a broad variety of mediums.
• Investments in private-equity tend to be in largeblocks and therefore are only accessible to high net worth individuals and institutional investors. This is directly opposite to public capital market investments where investors can purchase as little as one share in a company (which could amount to an investment of US$ 3!)

3. Why is Palamon interested in TeamSystem? Does it fit with Palomon’s investment strategy?

As noted above, Palamon’sstrategy as a generalist fund is to focus on small to mid-sized European companies where it can acquire a controlling stake for between E10 and E50 million. The company targets a 35% return on single portfolio investments and 20-25% return on blended portfolios with an investment horizon of 6 years.

Palamon had already highlighted the opportunity to invest in the payroll servicing industry in...