The Game Mechanism Of Private Equity And Deal Structure Design

Recent years, Private Equity gets dramaticly development in China, due to structural imbalance in finance system and phrase characteristics in Chinese economy. But it is PE’s unique investment model and exuberant vitality that bound to be the intrinsic determing factor. Actually, both term sheet and investment mandate agreement play a substantial important role in pratice. Thus the term sheet in overseas standard and its adjustment to Chinese suitability becomes the starting point of this essay.This paper analyzes and discusses the terms in deal structure in view of private equity. The process of portfolio company risk management can be divided to three phases:Ante due diligence, intermediate deal structuring, and post monitoring. There are various strategies against risk, such as elusion, elimination, decrease, sharing, shifting and reservation. Specific countermeasures include projects filtering, value evaluation, risk analysis and design of transaction structure. It also includes other instruments like management after investment, frequent information communication, value-added service and alternative withdrawal channels.Above all measures, however, deal structuring plays the most key role against various risks. Thus, this research extends detailed analysis and full-scale discussion base on core topic namely design of transaction structure.This article is comprised by six chapters.Chapter One:illustrates the background and point of this research, and introduces the mentality, method, and target, explains the main content, framework, innovation and shortcoming.Chapter Two:introduces the basic knowledge of PE concept, principal of being, relative potency and risk characteristi.Chapter Three:delve in depth the mechanism of dual game under asymmetric information, option characteristics of different convertible securities and subsection investments.Chapter Four:extends discussion the conception, basic principle, key elements and design procedures of deal structuring.Chapter Five:further explains the key points in deal structuring.Chapter Six:conducts comparative analysis of two typical cases of deal structuring. Deal Structuring is a applied subject, serving to practical investment, aiming to value creation, guided by risk management, taking systems and mechanism design theory as the guiding ideology, the incentive and restrictive as the core content, the information economics, game theory, principal-agent theory as analysis tools, the financial instruments and governance tools as implementation of measures, the protective and supportive provisions as auxiliary means, relying on the legal and cultural environment, regarding investment and management operations as engineering.