< PreviousA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES30 JANUARY | FEBRUARY 2019 t h e v a l u e e x a m i n e rKKL cite the Wruck (1989) and the Hertzel and Smith (1993) restricted stock studies which found that the average DLOM equaled approximately 17.6 percent and 13.5 percent respectively. Maher (1976) studied the restricted stock purchases made by four separate mutual funds from 1969 to 1973 which resulted in an average thirty-five percent DLOM from the publicly traded stock in the same companies. Moroney (1973) and Silber (1993) separately report a mean DLOM of thirty-six percent and a median DLOM of thirty-four percent for restricted stock purchases.For the IPO approach studies, KKL point to Emory (1994) who found a mean DLOM of forty-five percent. KKL assert that the major flaw with the IPO approach lies in its survivorship bias where only successful IPOs are used. Hence, the IPO approach provides inflated estimates for DLOM.Das, Jagannathan, and Sarin (DJS) (2002) introduced the expected exit multiple approach by examining 52,322 financing rounds in 23,208 different businesses from 1980 to 2000 that were completed by venture capital and buyout firms. DJS estimate the probability of exit, exit multiple, and expected gain from these private equity investments in order to ascertain the amount of discount in transaction price for private companies in the various stages of growth cycle, industry, and points in time. They believe that the expected exit multiple produces a guideline for the appropriate DLOM. For the 1984 to 1997 period which they studied, the mean industry-adjusted private equity multiples were approximately eighty percent for early stage companies and eleven percent for late stage companies. DJS point out that the major problem with this approach lies in the fact that they are capturing more than the marketability discount. Hence, it is still unclear whether the exit multiple approach provides a reasonable estimate for the DLOM.Koeplin, Sarin, and Schapiro (KSS) (2000) compare acquisition prices for public and private companies under their acquisition approach. Their results showed a twenty to thirty percent discount for private company acquisitions compared to public company transactions in the same industry. They point out that one major flaw with their study is that the private companies were smaller and grew at slower rates than their public company counterparts. Hence, the differences in acquisition prices paid may be due to these differences in attributes instead of a difference in marketability.Design and Execution of the StudyKKL chose their same sample of companies selecting all mergers and acquisitions from the DoneDeals database that took place between 1995 and 2002. They arrive at 331 private transactions by also utilizing the SDC Mergers and Acquisitions database. Approximately forty-eight percent of the private transactions took place in three years: 1998, 2000, and 2001. In addition, approximately seventy-five percent of the private acquisitions were from three industry groups: manufacturing, financial services, and services.KKL used the three multiples: price to sales (P/S), price to earnings (P/E), and price to cash flow (P/CF), provided by the DoneDeals database to approximate the private company estimate. They constructed their public company comparable portfolios by first ranking their individual private companies on the basis of year, industry, and size—measured by sales. Next, they created size-quartile portfolios for the individual private companies based on these three variables and estimated the cutoff point for each quartile. This is followed by ranking all of the public companies based on year, industry, and size to form industry-period-size portfolios based on the cutoff point for each private size quartile that was created in the previous step. Hence, for each private company transaction, KKL tried to determine a control public company portfolio, which includes all public company transactions in the same industry in the same year that were comparable in size to the individual private company. KKL designed a multivariate regression model to control for the influence of other potential factors that also affect the DLOMs. They use KSS’s approach for each of the three valuation multiples to measure the dependent variable DLOM by: 1 minus (private company multiple/median public company multiple) for each private transaction size quartile, time period, and industry. In order to explain the DLOM for private transactions, KSS’s multivariate model uses the P/S, P/E, and P/CF multiples as dependent variables for three separate regression models. They use the following five independent dummy variables in each of the three models to estimate: 1. Asset which equals 1 for individual private companies whose asset size was greater than the median of thecomparable public company portfolio, and 0 otherwise2. P/E which equals 1 for individual private companieswith P/E greater than the median of the comparablepublic company portfolio, and 0 otherwise, andA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESt h e v a l u e e x a m i n e r JANUARY | FEBRUARY 2019 313. Industry which equals 1 for industry i (where i = 1 to 7)4. Year which equals 1 for year t (t = 1995 to 2002)This cross-sectional regression model was estimated using the Ordinary Least Squares methodology with specific restrictions placed on the independent variable coefficients.Conclusion and ImplicationsKSS found that the median P/S, P/E, and P/CF were higher for the public company portfolios than the same ratios for the private companies. These findings provide evidence that there is a significant DLOM for private company acquisitions. The median DLOM was thirty-four percent based on P/E, seventeen percent based on P/S, and twenty percent based on P/CF. Their cross-sectional results reveal that the observed discount varies based on the attributes of the individual business and by industry. For large and high-growth private firms, the DLOM is apt to be smaller.These findings suggest that valuators should be cautious when applying DLOMs to private company valuations. KSS conclude by stating that the methods and data used to value private companies differ among valuation analysts. They point out that the DLOM varies across firms and the buyers of private companies. This, in turn, means that the use of rules of thumb—like the DLOM should be twenty to thirty percent—are inadequate. THE PRICE OF CORPORATE LIQUIDITY: ACQUISITION DISCOUNTS FOR UNLISTED TARGETSAuthor: Micah S. Officer, University of Southern CaliforniaSource: Journal of Financial Economics, Vol. 83, 2007, pp. 571–598.SummaryOfficer estimates the mean discounts for lack of marketability (DLOM) for individual private companies and unlisted targets—subsidiaries of public companies—that equal approximately fifteen percent to thirty percent in relation to the acquisition multiples for comparable publicly traded acquired firms. He finds that the prices paid for unlisted target companies are affected by the need for, and the availability of, liquidity which the buyer provides. Officer also finds that acquisition discounts are substantially higher when debt capital is relatively more expensive to obtain and when the selling firm has lower than market stock returns in the preceding twelve months before the sale.Literature Considered in the StudyOfficer reviews several different threads of prior literature. Bates (2005) focused on the cash generated by subsidiary sales and how businesses’ capital structure and investment opportunities affect where the proceeds from are placed. Schliemann, Stultz, and Walking (2002) showed that firms were more likely to sell subsidiaries that were in industries with a lot of merger and acquisition activity—i.e., where the markets are the most liquid. Lang, Poulsen, and Stulz (1995) claimed that firms sell assets to gain liquidity, and they tend to divest subsidiaries or dispose of significant assets after periods of weak operating performance. Kim (1998) found that companies in the contract drilling industry only sell their illiquid assets. Brown, James, and Mooradian (1994) examined the stock returns to asset sales announcements by troubled firms to find that they received considerably lower returns when the proceeds from the sales were used to pay off debt.Officer also points out that there is significant literature examining asset “fire sales”. Shleifer and Vishny (1992) presented a model where companies that are selling assets have to accept lower prices due to the fact that when their given industry lacks liquidity, so will the prospective buyers that compete in the same industry. Additional evidence supporting Shleifer and Vishny’s model was reported by Pulvino (1998) for used aircraft, Brown (2000) for real estate investment trusts, and Kruse (2002) for corporate assets in general.Design and Execution of the StudyOfficer uses the SDC Mergers and Acquisitions database (SDC) to select 12,716 successful and unsuccessful bids for at least fifty percent of the target’s equity over the period 1979 to 2003. He chose deals worth at least fifty million dollars, and included only all-cash, all-common stock, or a mix of cash and commons stock bids. He excluded bids with debt or preferred shares as compensation. He utilizes the four different acquisition multiples that are reported by SDC5 to analyze the data.5 The four multiples supplied by SDC that Officer selected were: 1) price to book value of equity, 2) price to earnings, 3) deal value to EBITDA, and 4) deal value to sales. Please note that SDC provides several other multiples to determine deal value. A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES32 JANUARY | FEBRUARY 2019 t h e v a l u e e x a m i n e rOfficer tests four hypotheses: •H1: On average, unlisted targets sell at a discount to (or at a lower premium over “fair value” than) comparable targets. •H2: Unlisted targets sell at a private discount to comparable listed targets when the seller’s pre-sale financial condition is worse (fire sales). •H2a: Unlisted targets sell at a greater discount to comparable listed targets when debt and equity market conditions make alternative sources of liquidity more difficult or costly to obtain. •H2b: Unlisted targets sell at a greater discount to comparable listed targets when debt and equity market conditions make alternative sources of liquidity less available or costly to obtain.Since neither market return nor price data are available for unlisted companies, Officer uses a variant of Kaplan and Ruback (1995) “comparable industry transaction method” to calculate acquisition discounts. It is important to note that his results using this method should be considered limited due to the fact that his original sample of 12,716 successful and unsuccessful bids was reduced down to 643 transactions, or twelve percent of the original sample due to limited multiples data for both unlisted target and comparable public company in the SDC sample. Officer used a multivariate regression model to test H2a and H2b which investigate the effect of both the supply and availability of capital on the acquisition discount for unlisted targets.Conclusions and ImplicationsOfficer found that the discounts for acquisitions of unlisted targets averaged from fifteen percent to thirty percent of the multiples paid to purchase comparable publicly traded targets. He consistently found that parent firms had reduced liquidity prior to the sale of unlisted subsidiaries. He also found that acquisition discounts were directly related to debt market liquidity with greater discount rates occurring when liquidity was tight in debt markets. He concludes by stating that acquisition discounts for unlisted targets appear to be the price paid by their shareholders for access to a valuable source of liquidity.This paper provided an important link between the literature found in the M&A and divestiture literature. Selling parts of, or a whole firm, is an important source of liquidity for those shareholders who are limited by owning nontraded assets. This source comes with a price that appears to, at a minimum, equal to alternate sources of liquidity—i.e., public and private debt and equity markets. Finally, Officer’s results imply that selling a portion of an unlisted firm should be a last-resort source of liquidity for shareholders that need cash when borrowing money is not appealing due to the cost of borrowing debt. Thus, the price paid to access liquidity suggested by selling unlisted assets is displayed in the discounted sale price buyers realize when acquiring unlisted businesses. Peter L. Lohrey, PhD, CVA, CDBV, is an assistant accounting professor at Montclair State University. He is also the Director of the Forensic and Valuation Services Department for Prager Metis CPA’s, LLC, an accounting firm located in Hackensack, NJ. He has over thirty-years’ experience in litigation services, valuation, mergers and acquisitions, loan workouts, and expert witness matters. He performed dozens of Fair Value reports for several different clients as the Northeast regional director of a national valuation firm. Dr. Lohrey specializes in commercial damage calculations and business valuation for tax, litigation, forensic, and financial reporting purposes. E-mail: lohreyp@montclair.eduVEA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESt h e v a l u e e x a m i n e rJANUARY | FEBRUARY 2019 33HEALTHCARE INSIGHTSPrivate Equity Investment in the Healthcare Industry: Past, Present, and Future(Part II of III)By Todd A. Zigrang, MBA, MHA, FACHE, CVA, ASA//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////While private equity investment has declined in the past couple of years due to global economic insecurity, private equity transactions in the healthcare industry have been growing significantly.1 A growing number of private equity groups are approaching large physician-held groups and other healthcare service enterprises, including hospitals and outpatient enterprises, seeking investment opportunities in the clinical services industry. This influx of private equity investment is not only ameliorating a dearth of financial capital available to healthcare service enterprises but is also allowing these provider groups to “step up” to the next phase of growth by providing the management capital (e.g., resources, knowledge, skills, and ability) to facilitate the provider’s transition to value-based reimbursement. This second installment of this three-part series will describe the history of the private equity industry, the current state of private equity as of fourth quarter 2018, and potential future trends in private equity. THE HISTORY OF PRIVATE EQUITYThe concept of private investment outside of an organized exchange has existed since the dawning of the mercantilist era, or at least as long as the rights of individuals to own property has been respected.2 In the absence of property rights, the very idea of private equity would be inconceivable, as investors would lack the ability to dispose of their property interests as they see fit, and therefore would be incapable of controlling the nature, timings, and magnitude of their investment returns, making private equity investment far 1 “Global Healthcare Private Equity and Corporate M&A Report 2017” By Kara Murphy et al., Bain and Company, April 19, 2017, bain.com/publications/articles/global-healthcare-pe-and-corporate-ma-report-2017.aspx (Accessed 2/7/19). 2 “Mercantilism” By Will Kenton, Investopedia, March 28, 2018, “Mercantilism” ArmstronEconomics, com/research/economic-thought/by-topic/mercantilism/ (Accessed 2/5/19).too risky to consider. In fact, private equity was non-existent prior to the rise of the mercantilist class and their insistence of protections for private property in Western Europe near the end of the Renaissance period (circa 1500–1600s).3 Even after ownership rights to property were secured by individuals, initial private equity-like investments were limited to investments by wealthy individuals in typically family-based businesses.4 These investments were more similar to the venture capital type start-up investments seen today, as they involved the creation of a new enterprise.5 Exceptions such as the French-based Crédit Mobilier, founded in 1854, collected contributions from high net worth individuals and invested the funds in infrastructure investment throughout Europe and the United States, most notably, the financing of the transcontinental railway across North America.6The modern idea of private equity is frequently traced to the founding of the American Research and Development Corporation (ARDC) in 1946 by former faculty of Harvard University and the Massachusetts Institute of Technology (MIT).7 ARDC had the stated goal of increasing private investment in veteran-owned businesses during the post-World War II era.8 ARDC would operate until it was sold to Textron in 1972, during which time it invested in over 150 new companies.93 4 “Bank Regulations” By S.K. Singh Darya Ganj, New Delhi: Discovery Publishing House, Pvt. Ltd., 2009, p. 94.5 Ibid.6 “Crédit Mobilier” enwiki/11592451 (Accessed 2/5/19); “Crédit Mobilier” History, 7 “Venture Capital, American Research Development Corporation, 1946” Entrepreneurial 8 “Venture Capital Financing in the Republic of Macedonia: What is done and what should be done?” By Veland Ramadani, ACRN Journal of Finance and Risk Perspectives, Vol. 3, Issue 2, (June 2014), pp. 27–28.9 Ibid, p. 32.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES34 JANUARY | FEBRUARY 2019 t h e v a l u e e x a m i n e rHowever, ARDC remained a venture capital firm, investing in start-up companies that were capital constrained.10 It was not until the 1980s that private equity firms other than venture capital firms began to flourish, although they were called “leveraged buyout firms” (LBOs) at that time.11 These LBOs pursued a strategy of leveraging the firm’s funds by taking on debt to acquire companies (or a controlling share of a company), and forcing the company to undertake tactics to enhance the value of the firm, with the ultimate goal of the LBO exiting the investment through an outright sale or an initial public offering (IPO), thereby generating a significant return for the LBO and its investors.12 These tactics are often characterized as “corporate raiding” or “hostile takeovers,” as the owners/management of the target company were not willing participants in the transaction and often did not approve of the changes made by the acquirer; the strategy would frequently result in the dismantling of the corporation into its more valuable constituent parts.13 A notable example of such tactics is Carl Icahn’s acquisition of Trans-World Airlines (TWA) in 1985.14Eventually, the negative connotations associated with the LBO industry led to firms rebranding their investment efforts as private equity, although the tactics of the corporate raiders continued, along with the development of the other private equity strategies discussed in the first installment of this series.15 10 “Venture Capital: 146 Sixth Street (Location of Ionics)” Innovation in Cambridge, html (Accessed 2/7/2019).11 “The Most Famous Leveraged Buyouts” By Prableen Bajpai, Investopedia, October 23, most-famous-leveraged-buyouts-kkr-cg-bx-vno-apo.aspx (Accessed 2/5/19); “Leveraged Buyout (LBO)” Investing leveraged-buyout-lbo-961 (Accessed 2/5/19); “Understanding Leveraged Buyout Scenarios” By Michael Schmidt, Investopedia, December 20, leveraged-buyouts.asp (Accessed 2/5/19).12 Ibid.13 “Valuation of Healthcare Service Sector Enterprises for Purposes of Private Equity Investment: Introduction” Health Capital Consultants, Vol. 10, Issue 11 (November newsletter/11_17/HTML/PE/10.11_formatted_hc_topics_pe_11.29.17.php (Accessed 2/5/19); “Leveraged Buyout (LBO)” Investing Answers, Encyclopaedia Britannica, 14 “Leveraged Buyout (LBO)” Investing Answers, com/financial-dictionary/businesses-corporations/leveraged-buyout-lbo-961 (Accessed 2/5/19); “Carl Icahn” Encyclopaedia Britannica, 15 “Private Equity: The ‘LBO Firm’ gets a PR Facelift” pegasusics.com/investing-in-private-equity-the-erstwhile-lbo-firm-gets-a-pr-facelift (Accessed 2/5/19).The history of private equity suggests that it was an extension of venture capital, which it was, in a sense However, this is only in a historical sense; the term private equity is typically viewed, in many academic circles, as the more general term, with venture capital reflecting a specific subset within private equity despite the order of the historical evolution of the industry.THE CURRENT STATE OF PRIVATE EQUITYAccording to the McKinsey and Company Global Private Markets Review 2018, private market fundraising grew by 3.9 percent year on year (YOY) worldwide (including by 3.4 percent in North America) from 2016 to 2017, while the private equity fundraising portion increased by eleven percent worldwide YOY (18.6 percent in North America),16 suggesting that investors are shifting into private equity from other private markets. Further, the McKinsey report assets under management (AUM) for private markets totaled ~$5.2 trillion, with ~$2.9 trillion (fifty-six percent) coming from North America.17 Of the $2.9 trillion in North American private market investment, ~$1.5 trillion (fifty-one percent) comes from private equity investment.18 The private equity market for North America is comprised of the following components:1. Buyout Private Equity—$924 billion AUM, ~sixty-two percent of North American private equity investments and ~thirty-two percent of total North American private market investments2. Venture Capital—$327 billion AUM, ~twenty-two percent of North American private equity investments and eleven percent of total North American private market investments3. Growth—$121 billion AUM, ~eight percent of North American private equity investments and four percent of total North American private market investment4. Other—$107 billion AUM, ~seven percent of North American private equity investments and 3.6 percent of total North American private market investments19The report also notes that deal volume (measured in total dollars) increased by fourteen percent from 2016 to 2017, 16 “The Rise and Rise of Private Markets: McKinsey Global Private Markets Review 2018” McKinsey & Company, com/~/media/mckinsey/industries/private%20equity%20and%20principal%20investors/our%20insights/the%20rise%20and%20rise%20of%20private%20equity/the-rise-and-rise-of-private-markets-mckinsey-global-private-markets-review-2018.ashx (Accessed 12/13/18), p. 6.17 Ibid, p. 13.18 Ibid.19 Ibid.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESt h e v a l u e e x a m i n e r JANUARY | FEBRUARY 2019 35while deal count (measured in transactions) decreased by eight percent, suggesting that the average amount paid per deal increased significantly during that time period.20PitchBook and the National Venture Capital Association (NVCA) have also partnered to produce a quarterly venture capital publication, entitled Venture Monitor, which reports copious amounts of data related to the venture capital subsector of the private equity market.21 As reported in the Quarter 4, 2018 report, with data current as of 12/31/2018, total venture capital deal value increased from $82.95 billion in 2017 to $130.93 billion in 2018, a YOY increase of 57.83 percent, while the number of closed deals decreased from 9,489 deals in 2017 to 8,948 deals in 2018, a 5.7 percent decline.22 Consequently, the average deal size in 2017 was $8.7 million per closed deal, and $14.6 million in 2018, representing a sixty-seven percent YOY increase.23Exhibit 1 sets forth the distribution of private equity deals by sector.EXHIBIT 1: PRIVATE EQUITY DEALS BY SECTOR24Pharma & Biotech 42% Other 8% HC Services & Systems 22% Software 2% Energy 2% IT Hardware 6% Consumer Goods & Recreation 6% HC Devices & Supplies 2% Commercial Services 3% Media 7% As illustrated in Exhibit 1, the deal volume is dominated by investments in the Software sector, reflecting the heavy use of venture capital by software start-ups, which has increased from thirty-six percent of deals in 2008 to forty-two percent of deals in 2018.25 However, in average value per deal, Software falls to fourth place with an average of $12,362,401 per deal; Pharmaceuticals and Biotechnology top the list at $24,141,869.26 Exhibit 2 sets forth the average value per deal for all sectors.20 Ibid, p. 17.21 “The 4Q PitchBook-NVCA Venture Monitor” PitchBook Data Inc., National Venture Capital Association (NVCA), 2019, Table of Contents.22 “The 4Q PitchBook-NVCA Venture Monitor” PitchBook Data Inc., National Venture Capital Association (NVCA), 2019, Table Deal Flow X Year.23 Ibid.24 “The 4Q PitchBook-NVCA Venture Monitor” PitchBook Data Inc., National Venture Capital Association (NVCA), 2019, Table Deals by Sector.25 Ibid.26 Ibid.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES36 JANUARY | FEBRUARY 2019 t h e v a l u e e x a m i n e r$24.14$20.59$12.56$12.53$12.16$10.86$10.42$9.98$8.94$7.62Pharma&BiotechOtherHCServices&SystemsSoftwareEnergyITHardware ConsumerGoods&RecreationHCDevices&SuppliesCommercialServicesMediaValueperDeal($MM)EXHIBIT 2: VALUE PER DEAL BY SECTOR2727 “The 4Q PitchBook-NVCA Venture Monitor” PitchBook Data Inc., National Venture Capital Association (NVCA), 2019, Table Deals by Sector.These results suggest a trend of increasing use of private equity funds in the marketplace, although the number of deals have recently decreased, leading to a rise in value per deal.THE FUTURE OF PRIVATE EQUITYGenerally, the outlook for private equity in 2019 and beyond is positive. While volatility reigns in public markets, owing to ongoing trade wars, uncertainty regarding tax policy, and geo-political realignments such as the so-called “Brexit” crisis in the United Kingdom, many observers expect the turbulent state of capital markets to make private equity investment more attractive, particularly to institutional investors such as pension and sovereign wealth funds.28 A recent article published in Forbes notes that “Private equity funds appreciated 8.2 percent in 2018, while virtually all major public market indexes experienced double-digit annual declines.”29 The article goes on to suggest that this trend will continue into 2019, a sentiment echoed in another industry report published by the private equity firm Partners Group, which states:28 “10 Predictions For Private Equity in 2019” By Antoine Drean, Forbes, February 1, 2019, antoinedrean/2019/02/01/10-predictions-for-private-equity-in-2019/#74f998e65098 (Accessed 2/6/19).29 Ibid.27 “The 4Q PitchBook-NVCA Venture Monitor” PitchBook Data Inc., National Venture Capital Association (NVCA), 2019, Table Deals by Sector.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESt h e v a l u e e x a m i n e r JANUARY | FEBRUARY 2019 37“While our base case economic outlook projects a period of continued modest growth, we are aware that the ride may become bumpier as multiple challenges emerge. In this environment, we believe entrepreneurial ownership and strong value creation skills are the only way to generate outperformance.”30However, the report goes on to caution investors that:“[T]he combination of rising interest rates in the U.S., the potential effects of trade conflicts, structural challenges in Europe, and divergence in emerging markets should raise volatility in capital markets, as already witnessed in the October equity market sell-off. This is typical for the later stages of an expansion, especially in a market where elevated valuations are largely based on a low risk-free rate. Over a five-year horizon, we expect valuations to come down in light of higher U.S. inflation and rising interest rate…”31Although the beneficial effects to valuation as a result of the recent favorable corporate tax policies may provide a soft landing for investors, providing support for valuations beyond those derived solely from “low risk-free rates.”32Further, difficulties may arise from the crowded field of private equity firms encouraged to enter the industry by demand from investors.33 Competition among private equity firms will tend to exert upward pressure on entry multiples, eroding potential gains at exit.34 This highlights the need for “value creation skills,” as noted in the Partners Group report, as much of the low hanging fruit will have already been picked.35 This may create a trend toward greater specialization within the private equity market, as industry-specific knowledge and the ability to identify opportunities for improvement become necessary to “wring out” the additional profits necessary to support the historical returns for the private equity industry.3630 “Highlights from the Private Markets Navigator: Outlook 2019” Partners Group, current/private-markets-outlook-2019/ (Accessed 2/6/19).31 Ibid.32 Ibid.33 Ibid.34 Ibid.35 Ibid.36 “Highlights from the Private Markets Navigator: Outlook 2019” Partners Group, publications/current/private-markets-outlook-2019/ (Accessed 2/6/19); “10 Predictions for Private Equity in 2019” By Antoine Drean, Forbes, February 1, antoinedrean/2019/02/01/10-predictions-for-private-equity-in-2019/#398ad8d50987 (Accessed 2/6/19).CONCLUSIONPrivate equity firms have grown from an industry comprised largely of wealthy individuals investing in family businesses to a multi-billion dollar industry with investments in nearly all facets of the modern economy.37 This phenomenal growth has been fueled by the ever-present demand for investments that are capable of outperforming traditional equity markets, although with these additional returns comes additional risk; the rise of the private equity market has largely been a response to the need for investors to manage these risks.38 Private equity firms provide expertise to investors in mitigating these risks and determining appropriate valuations for their investments. However, the industry may be suffering from its own success, as increased competition among private equity investors is leading to ever larger valuations, squeezing the potential margins and requiring private equity firms to seek out additional skills, e.g., industry experts, to maintain their historical margins.39The final installment of this three-part series will review trends in the use of private equity within the healthcare industry.Todd A. Zigrang, MBA, MHA, FACHE, CVA, ASA, is president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis for hospitals and other healthcare enterprises. Mr. Zigrang has significant physician-integration and financial analysis experience and has participated in the development of a physician-owned, multispecialty management service organization and networks involving a wide range of specialties, physician owned hospitals, as well as several limited liability companies for acquiring acute care and specialty hospitals, ASCs, and other ancillary facilities. E-mail: 37 “Private Equity & Venture Capital” knowledge-bank/private-equity-and-venture-capitalprivate-equity-venture-capital/ (Accessed 2/7/19).38 “Private equity rolls on: How investors and managers are responding to scale” McKinsey & Company, private-equity-and-principal-investors/our-insights/private-equity-rolls-on-how-investors-and-managers-are-responding-to-scale (Accessed 2/6/19).39 “Highlights from the Private Markets Navigator: Outlook 2019” Partners Group, publications/current/private-markets-outlook-2019/ (Accessed 2/6/19); “Private Equity Deal Value Rises in A Crowded Market” By Hugh MacArthur, et al., Forbes, March 22, 2018, baininsights/2018/03/22/private-equity-deal-value-rises-in-a-crowded-market/#59bdd9e73537 (Accessed 2/7/19).VEA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES38 JANUARY | FEBRUARY 2019 t h e v a l u e e x a m i n e rPRACTICE MANAGEMENTSIX LEADERSHIP HABITS TO DEVELOP IN 2019By Mark Green//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////Bad habits can be hard to break, and for business leaders who have them, they can be deal-breakers.In a survey1 by Leadership IQ, an online training firm, the primary reasons CEOs were fired—mismanaging change, ignoring customers, tolerating low performers, and not enough action—were often related to unproductive habits. “Although leaders who display these behaviors generally know what to do, and how to do it, their unproductive habits render them unable to get things done—with dire consequences,” says Mark Green, a speaker, coach to CEOs, and author of Activators: A CEO’s Guide to Clearer Thinking and Getting Things Done leadership habits include avoiding decisions and conflict, maintaining comfort-zone networks, needing to be liked, and neglecting to listen enough—and they are hard to break.”But Green says they can be broken and suggests replacing them with foundational habits that make leaders successful. He lists six of them here. 1) Capitalize on luck. This is a habit of forward-moving thinking in response to both good- and bad-luck events. Bad luck, such as the extended absence of a key employee, affords an opportunity for the leader to empower others by challenging them to learn, grow, and contribute in new ways. Whatever the circumstances, leaders rapidly come to understand the value of generating return on luck.2) Be grateful. When you appreciate and value what you have, you gain a clearer perspective. A daily meeting ritual of appreciation creates space for each executive to share what they appreciate most, and it opens up the room to clearer thinking and increased collaboration.3) Give—within limits. Research shows there are many advantages to being a giver, but striking a balance is important to remain productive. Sharing information and resources cultivates an abundance mindset, bringing benefits that both the company and the leader can reap. But there are limits; if you are giving away too much time and too many resources, you will not be able to accomplish your own objectives. Give, but know when to say no.4) When problems arise, focus on process—not people. When something goes wrong, a common approach is to find fault with the people involved. But bad or poorly communicated processes can make even the most talented, dedicated staff look terrible. Question processes and communication first, before you explore the intentions, character or capabilities of those involved. Research shows that believing in your people pays off.5) Have high expectations of others. Leaders who set the bar high and then give their teams latitude to execute, reap more benefits than those who simply tell their teams what to do. Those whose habits include valuing autonomy and individual responsibility can build something great over time. High expectations and empowerment are key.6) Maintain intentional focus. Countless research studies have exposed excessive multi-tasking as ineffective. To make real progress, hold a small number of very important things in your mind and let go of the rest. Ruthless prioritization and focus in execution will set you free.With our thoughts, we make our world. Check your beliefs about your leadership habits, choose just one or two to change, enlist others to support your efforts, then get to it.Mark Green, author of Activators: A CEO’s Guide to Clearer Thinking and Getting Things Done speaker, strategic advisor, and coach to CEOs and executive teams worldwide. He has addressed, coached, and advised thousands of business leaders; helping them unlock more of their potential and teaching them how to do the same for their teams. He is a Core Advisor to Gravitas Impact Premium Coaches (formerly Gazelles International), a mentor to coaches worldwide, and an active contributor to programs and content for their global ecosystem. Contact: VEA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINESt h e v a l u e e x a m i n e rJANUARY | FEBRUARY 2019 39Ihope you enjoyed last issue’s interview with Sarah Spelts Loebl. Our interview series continues, with this issue featuring Tracy Coenen, CPA, CFF.SNAPSHOT •My credentials: CPA, CFF •I’m located in: Milwaukee and Chicago (I got my start andlive in Milwaukee, but I do about half of mywork in Chicago) •I’ve been on my own since: January 2000 •Name of my firm: Sequence Inc. ForensicAccounting •My practice sweet spot is: Exclusivelyforensic accountingRod: So, the BVFLS profession isn’t exactly a calling. Tell us about your background and how you got to where you are today.Tracy: For me, it absolutely felt like a calling. I am fascinated with the criminal justice system and I wanted to be a part of it. I majored in criminology and law studies at Marquette University, and I saw myself becoming a prison warden someday. As a sophomore, I took a class called Financial Crime Investigation, and I was hooked. I started taking accounting and economics courses so that I could work toward a forensic accounting career. I worked as a probation officer while I worked on an MBA at night, finishing up the requirements needed to sit for the CPA exam.My first job in the accounting world was as an auditor for Arthur Andersen. I got as much experience as I could while I was there, and then I moved to a small forensic accounting firm so I could get started in my desired specialty. After a couple of years, I left to start my own practice. I had visions of growing my practice by adding staff, but after working with a few employees, I decided that I liked the solo practitioner life better. I’ve been solo for 19 years now, and I wouldn’t have it any other way. I like being responsible for everything on my cases. I have excellent quality control, and I know the numbers inside and out. When it comes time for depositions and trial, I can answer the questions about the numbers confidently.Rod: What was your first year like, and what would have made it better?Tracy: My first year was a lot slower than I envisioned. I knew it would take time to develop relationships and get cases, but I underestimated how long. I really didn’t start developing a network until after I was out on my own, and that made it difficult to obtain clients. In hindsight, I should have waited to start my own practice until I had a stronger network of attorneys and other business professionals.That said, I don’t regret how I started my firm. I got involved in business groups right away (like chambers of commerce and referral groups) and quickly started meeting people and developing a professional network. Even though I wasn’t really ready for what was coming, I am still happy that I jumped into the business when I did. It was right around the time that the big frauds like Enron and WorldCom were in the news, so there was a lot of talk about fraud. That helped generate interest in my work, and ultimately helped me get the word out.Rod: Did you have a formal (or even semi-formal) business plan?Tracy CoenenPRACTICE MANAGEMENT///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////PRACTICING SOLO"Practicing Solo” features interviews with our industry’s new and seasoned sole practitioners. If you are itching to join the solo ranks, or striving to be more efficient and effective in your established one-person firm, this column offers you practical advice, steeped in experience from the trenches, that can move you forward.///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////By Rod P. Burkert, CPA, ABV, CVA, MBAINTERVIEW: TRACY COENENNext >