Mergers & Acquisitions

M&A Talk Podcast

M&A Talk is the #1 podcast on mergers & acquisitions. At M&A Talk we bring you exclusive interviews with experts in business sales, valuations, mergers and acquisitions, and more. We talk to the most experienced professionals in the industry to uncover their secrets.

The Basics of Private Equity

The Basics of Private Equity

Jeff Hooke

Investment Banker | Private Equity

Listen as we take a deep dive into the world of private equity with Jeff Hooke, author of five books on M&A, including his most recent book – The Myth of Private Equity: An Inside Look at Wall Street’s Transformative Investments. Jeff has been the director of a $5 billion private equity firm and an investment banker at Lehman Brothers. In this show, we cover everything you need to know about private equity if you are an entrepreneur and are considering a sale to a private equity firm, including how private equity firms operate and are structured, what investments they prefer to make, and how they acquire companies.

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Guest Profile

Jeff is currently a senior finance lecturer at Johns Hopkins Carey Business School, and a Senior Advisor at Focus Investment Bank in Washington, D.C. Previously, he was a Managing Director of Focus. Earlier, he was Vice President of Research at the Committee on Economic Development (CED), a Washington think tank. He has also been a director at the Emerging Markets Partnership, a $5 billion private equity group, and a Principal Investment Officer of the International Finance Corporation, the $30 billion private sector division of the World Bank.

His New York investment-banking career covered two major firms: Lehman Brothers and Schroder Wertheim. He began his career as an investment officer in the private placement department of Metropolitan Life Insurance. Jeff has an MBA from the Wharton School and a BS degree (cum laude) from the University of Pennsylvania.

Jeff is the author of five books on finance:

  • The Myth of Private Equity, An Inside Look at Wall Street’s Transformative Investments (Columbia University Press, 2021)
  • M&A, A Practical Guide to Doing the Deal (John Wiley & Sons, 2nd edition, 2015)
  • Security Analysis and Business Valuation on Wall Street: A Comprehensive Guide to Today’s Valuation Methods (Wiley, 2nd edition, 2010)
  • The Emerging Markets: A Practical Guide for Corporations, Lenders, and Investors (John Wiley & Sons, 2001)
  • The Dinosaur Among Us: The World Bank and its Path to Extinction” (BookSurge, 2007)

Jeff’s specialties cover a wide range of financial areas, including business valuation, mergers and acquisitions, international finance, emerging markets, private equity, investor relations, corporate finance, and equity and security analysis.

In addition to his books on finance, Jeff is the author of multiple peer-reviewed academic papers and has spoken in front of many university and industry groups around the world. In December 2021, he spoke before both the Harvard and Wharton business schools about his newest book.


  • Target companies are low-tech with minimal debt and consistent cash flow. Consistent cash flow is required to service the debt.
  • There are approximately 4,000 private equity funds, in addition to approximately 4,000 active publicly traded firms.
  • The United States stock market is valued at approximately $40 trillion. The private equity business is valued at approximately $3 trillion to $4 trillion, or about 10% of the value of the US-stock market.
  • Private equity is just that – “private” – so data is limited.
  • The first major fund was started by KKR in the 1980s.
  • 65% of the private equity business consists of leveraged buyouts, another 20% consists of venture capital, and 15% is in growth capital and distressed funds.
  • Venture capital is an unleveraged minority investment in a high-growth, highly scalable (e.g., tech) company that may be losing money and can’t support their debt payments.
  • Private equity investments are highly leveraged, which magnifies returns (or losses).
  • Limited partners consist of pension funds, foundations, and sovereign funds whose objective is preservation of capital and diversification – their return expectations are 8% to 9% per year with minimal downside risk. Large limited partners invest in hundreds of PE funds.
  • The average PE deal structure consists of 20% to 25% down payment, 5% to 10% seller note, and 65% to 75% third-party (bank) financing.
  • The typical life of a PE fund is 10 to 12 years.
  • Most professionals in the private equity field come from Wall Street.
  • The typical PE firm charges a 2% annual management fee.
  • The cost of capital is much lower for public companies than for private firms.
  • Most PE firms are industry agnostic.

Topics Covered

  • What is private equity? [3:00]
  • Why don’t limited partners invest directly in companies? [4:00]
  • When was the first prominent PE fund? [6:45]
  • What are the major differences between venture capital and private equity? [8:00]
  • Who are the PE firms’ customers? [10:00]
  • What are the return expectations of limited partners? [10:45]
  • How many limited partners might an average PE fund have? [12:00]
  • How does a capital raise/call work? [12:30]
  • What are the chances a business owner will sell their company to a PE firm if they fit the description? [13:10]
  • How is a typical PE fund structured? [14:10]
  • Why is leverage used? [15:20]
  • Why don’t venture capital firms use leverage (i.e., debt)? [16:40]
  • Why don’t venture capital firms make majority investments? [17:35]
  • How many companies does a PE firm invest in per fund? [18:50]
  • What would a single look like? A double, a triple, a home run? [19:40]
  • Why do PE firms use internal rate of return (IRR) to measure returns? [20:10]
  • How does the time-sensitive nature of IRR affect private equity firms’ behavior? [21:15]
  • Who is in the private equity world? [22:15]
  • How do private equity firms use specialists and experts? [23:10]
  • How are PE funds structured with the limited partners (e.g., carried interest, fees on committed capital, etc.)? [24:45]
  • How did the private equity world start? [27:15]
  • Why did you name your book The Myth of Private Equity? [29:20]
  • What is the principal message of your book? [31:00]
  • Is there a secondary market for PE investments? [33:35]
  • Why do institutions continue to invest in private equity funds if they don’t outperform the public markets? [33:50]
  • How do we obtain performance information on the industry if it’s private? [37:05]
  • Wouldn’t a limited partner want to keep a high-performing PE firm secret? [42:15]
  • Where do you think the PE industry will be in 50 years? [43:30]
  • Is the negative perception of PE exaggerated? [44:50]
  • What should an entrepreneur know about selling to a private equity firm? [46:00]
  • What is the minimum you should know about a PE firm before you have a sit-down with a PE firm? [47:30]
  • How long does a PE firm need the entrepreneur to stick around? [50:30]
  • How is compensation structured to retain the owner? How does a roll-in/roll-over work? [52:40]
  • What is a double-dip? [55:10]
  • How is a roll-in/roll-over structured? [59:40]
  • What else should a business owner know about selling to a PE firm? [1:02:00]
  • Is there any reason not to sell to a PE firm? [1:02:40]
  • What is the main difference between selling to a strategic buyer vs. selling to a PE firm? [1:03:15]
  • Why can PE firms often pay more than a strategic buyer? [1:05:15]

Learn More

Resources Mentioned

A Roadmap to the Successful Sale of Your Business (152 pages)

A Roadmap to the Successful Sale of Your Business (152 pages)

You could spend a lifetime figuring out how to successfully sell your business and still end up confused or clueless. What if you can stop the guesswork and start taking action now?

Read more