In private equity, investors talk about the “value gap”.
The Value Gap is the difference between the price you’ll take and the price we’ll pay. Deals go ahead once the gap is small enough for one side to capitulate.
Typically, the value gap is reduced by way of negotiation. But in private equity, the value gap is mostly reduced by (a finely crafted) perception. To create this perception, we focus our attention on term sheets and stockholder agreements.
In the book, I’ll explain exactly how private equity investors manipulate term sheets to create the value gap perception. But first, let’s look at what motivates investors.