BINDEX 03/09/2012 18:54:54 Page 345 Index A SAS 111, 267 SAS 112, 267–268 Accountants, 92, 223–226 SAS 113, 268 Accredited investors, 16, 339 SAS 114, 269 Acquisition, 339 SAS 115, 270 Acquisition Premium, 339 American Jobs and Closing Tax Advisors, selection of, 91–92 Loopholes Act of 2010, 54 Akerlof, George, 48 American Research and American Accounting Association Development Corporation (AAA), 339 (ARD), 31 American Institute of Certified American waterfall model, 10 Public Accountants (AICPA), Angel investing, 20–21 339 Antitakeover provisions, 93 accounting and review standards, Antitrust legislation, federal 270–271 235–238 SSARS 10, 271 Celler-Kefauver Antimerger Act SSARS 12, 271 (1950), 237 auditing standards Clayton Antitrust Act (1914), SAS 1, 243 236 SAS 1 amendments, 257 Federal Trade Commission Act SAS 82, 249 (1914), 236–237 SAS 82 replacements, Hart-Scott-Rodino Antitrust 257–264 Improvement Act (1976), SAS 85 amendments, 257 140, 237–238 SAS 95, 249 Robinson-Patman Act (1936), SAS 99, 256–257 237 SAS 104,COPYRIGHTED 264 Sherman MATERIAL Antitrust Act (1890), SAS 105, 265 236 SAS 106, 265 Apollo Global Management, 53, 55 SAS 107, 265–266 Assessments, manufacturing, SAS 108, 266 319–333 SAS 109, 266 corporate vision and mission, SAS 110, 267 323–324 345 BINDEX 03/09/2012 18:54:54 Page 346 346 INDEX Assessments, manufacturing Breakup fee, 129–130, 339 (Continued) Bridge financing, 339 customer satisfaction and Broker-dealer, 339 perceived quality, 322–323 Bulge bracket bank, 74 employee satisfaction, 320–322 Business development companies equipment and facility (BDCs), 54 maintenance, 324–326 Business intelligence, 277–292, 339 inventory management and application to private equity, product flow, 327–328 291–292 operational data and cost of sales, exit strategy, 292 328 investment decision, 291 visual management, 326 portfolio companies, strategic Audit, scaling, 206 management of, 291 Auditing Standards. See also Public competitive, 281–282 Company Accounting contemporary, 278–281 Oversight board (PCAOB) employees, 280–281 standards legal proceedings, 279–280 AU §322, 207 news archives, 279 No. 5, 202–204, 214–215, 216 patent awards and applications, 280 B public records searches, 278–279 social networking, 280 Baldwin, Greg, 221 cost of capital and option to Bank Secrecy Act, 219–220 invest, 285–287 Bankruptcy code, 339 developing relationships and Baskets and caps, 131 navigating crises, 290–291 Bendix, 112–113 developing unique intelligence, Bertrand’s two-firm model, 288 287–288 Best effort, 74 normalizing performance, Bidder confidentiality agreement 282–285 (BCA), 117 quality, economic view of, BlackRock Inc., 55 289–290 Blackstone Group, 4, 6, 11, 15, 19, Buyout funds, 13 51–54, 62, 65, 170, 248 returns by fund size, 43–45 Blank check company, 339 Buyouts, 21, 164–166 Blue sky laws, 339 liabilities under, 105 C Bobrow, Richard S., 279–280 Book building, 73 California Public Employees’ Boutique investment bank, 74 Retirement System Breaking issue, 77 (CalPERS), 6 Breakpoints, 13 Campeau, Robert, 32 BINDEX 03/09/2012 18:54:54 Page 347 Index 347 Capital Asset Pricing Model Control Objectives for Information (CAPM), 339 and Related Technology Capital, drawing down, 8 (COBIT), 186–187, 339 Capital calls, 8, 339 Cooling off period, 340 Carried interest, 10, 14–15, 339 Copyrights, 147–148 current tax framework for, Corporate housekeeping matters, 93 63–64 Covenants, 27–28 Celler-Kefauver Antimerger Act Cressey, Donald R., 223 (1950), 237 Crisis management, corporate Chief executive officer (CEO), 15, governance and, 168–171 101, 171–172, 298 Cullman, Lewis, 31 certifications, 244, 247 Chief financial officer (CFO), 15, D 101, 228 Certifications, 244, 247 Dagres v. Commissioner, 63 Chief operating officer (COO), 15 Data room, 118 Chief legal officer (CLO), 15 Definitive merger agreement Chief recruitment officer, 15 (DMA), 119, 340 Christensen’s framework, 300–301 Deming cycle, 314–315 Clawback provision, 10 Denominator effect, 38 Clayton Antitrust Act (1914), 236, Directors and officers questionnaire, 339 99 Cleantech investments, 41 Disclosure of acquisitions, 138 Club deal, 9–10 Discounted cash flow analysis, 126 Committee of Sponsoring Disinvestment period, 340 Organizations of the Dodd-Frank Wall Street Reform Treadway Commission and Consumer Protection (COSO), 178–179, 340 Act, 6–7, 16–17, 58, 61–62, Competitive intelligence, 340 71, 105–109, 182, 187, Compound annual growth rate 201–202, 235, 240, 243, 340 (CAGR), 283 Doriot, General Georges, 31 Comparable public companies, Dot-com companies, 35–37 126 Dow Jones’ Private Equity Analyst, Comparable transactions, 126 55, 62 Confidential information Draper Fisher Jurvetson, 41 memorandum (CIM), Due diligence 116–117 assessments, manufacturing, Confidentiality, 100 319–333 Consumer protection legislation, corporate vision and mission, federal, 238–239 323–324 Control acquisitions, 340 customer satisfaction and Control environment, 340 perceived quality, 322–323 BINDEX 03/09/2012 18:54:54 Page 348 348 INDEX Due diligence (Continued) Employees, as source of employee satisfaction, information, 280–281 320–322 Energy Policy Act (EPACT), 241 equipment and facility Enterprise risk management (ERM), maintenance, 324–326 183–184, 341 inventory management and Equity financing, 340 product flow, 327–328 European waterfall model, 10 operational data and cost of Evergreen funds, 7 sales, 328 Exit, 341. See also Harvest visual management, 326 intellectual property, 149–152 F assessing risk of proposed acquisition, 151–152 Fairness opinion, 126 evaluating investment value, Federal Energy Regulatory 149–151 Commission (FERC), 241 reverse, 157–158 Federal Trade Commission (FTC), IPO, 100 235–239, 341 sale transaction, 125 federal antitrust legislation, acquirer, 130 235–238 seller, 131 Celler-Kefauver Antimerger Duncan framework, 299–300 Act (1950), 237 Dunlap, “Chainsaw Al,” 165 Clayton Antitrust Act (1914), 236 E Federal Trade Commission Act (1914), 236–237 Earnouts, 129, 340 Hart-Scott-Rodino Antitrust Earnings before interest and tax Improvement Act (1976), (EBIT), 117, 317 140, 237–238 Earnings before interest, tax, Robinson-Patman Act (1936), depreciation, and 237 amortization (EBITDA), 21, Sherman Antitrust Act (1890), 117, 317 236 Earnings per share (EPS), 73, federal consumer protection 126–127 legislation, 238–239 Electronic Data Gathering and Federal Trade Commission Act Retrieval System (EDGAR), (1914), 236–237 241 Fiduciary-out clause, 119 Employee Retirement Income Financial Executive International Security Act of 1974 (FEI), 341 (ERISA), 17–18, 31, 79, 163, Financial Crimes Enforcement 341 Network (FinCEN), Prudent Man Rule, 18, 31, 342 220–221, 341 BINDEX 03/09/2012 18:54:55 Page 349 Index 349 Financial statement fraud, 219–234 process, 22–25 categories of fraud, 221–222 recent trends in, 25–26, 54–60 definition of fraud, 222–223 and due diligence procedures, G 231–233 background investigation of Gatekeepers, 8, 22 key employees, 231–232 Gates, Bill, 71–72 file metadata, checking, General Motors (GM), 305–306 232–233 General Motors Acceptance journal transactions, testing of, Corporation (GMAC), 232 229–230 financial statement attestation, General partner 225–227 incentives, 12–15 audit, 226–227 investment restrictions, 26–28 compilation, 226 Gladwell, Malcolm, 282 review, 226 “Green Shoe,” 77 tax return preparation, 225–226 Guiltless Gourmet, 281–282 money laundering, 219–221 Gun jumping, 76 recommendations, 227–231 required elements of fraud, H 223–225 Firm commitment, 74 Hart-Scott-Rodino Antitrust Follow-on fund, 10–11 Improvement Act of 1976, Force majeure, 119 140, 237–238 Foreign Corrupt Practices Act Harvard Management Company, (1977), 243–244 46–47 Forensic valuation, 292 Harvest, 341 Form SB-2, 78–79 Hierarchy of needs, 341 Forward merger, 341 Historical trends, overview of, 29–49 Fraud private equity categories of, 221–222 brief history of, 29–33 in connection with offer and sale at the turn of the century, of a security, 104–105 33–39 definition of, 222, 341 secondary funds, 45–48 financial statement, 219–234 venture capital required elements of, 223–225 and buyout returns by fund risk, 206 size, 43–45 Free writing prospectus, 76 investment and returns by fund Frito-Lay, 281–282 stage, 39–43 Fund of funds (FoF), 4, 18 Holt-Winters method of prediction, Fundraising 285 levels, 1980–2010, 3 Horizontal takeovers, 111, 341 BINDEX 03/09/2012 18:54:55 Page 350 350 INDEX I principal parties, 94, 96, 97 registration process, 100–102 Icahn, Carl, 32, 165 selling security holder Images of Organization (Morgan), documents, 98–99 293 Sarbanes-Oxley Act and Industry Little Hawk, 56–57 Dodd-Frank Act, 105–109 Information Systems Audit and filing obligations, 107 Control Association reverse mergers, 107–109 (ISACA), 272–273, 341 Institute of Internal Auditors (IIA), Initial public offerings (IPOs) 178, 192 advance planning opportunities, standards, 272 91–94 Institutional Limited Partners accountants, 92 Association (ILPA), 10 advisors, selection of, 91–92 Institution of Management antitakeover provisions, 93 Accountants (IMA), 341 corporate housekeeping Institutional-quality investments, 19 matters, 93 Intellectual property, 143–159 management, 94 creating value during securities counsel, 92 management, 152–156 underwriters, 93 brand development efforts, advantages, potential, 87–89 boosting, 154–155 disadvantages, potential, 89–91 knowledge-based resources of harvesting investments through, the workforce, preserving, 69–83 155–156 basics, 69–72 patent rights, leveraging and historical