Private equity
Private equity
Private equity (PE) transactions are equity investments by financial investors in companies outside the public markets. The capital of PE funds comes from institutional investors. PE transactions can comprise the complete acquisition or partial investments in target companies. PE investments are primarily aimed at increasing the value of the target company in order to sell it profitably after a period of typically five to seven years.
PE transactions are also characterised by a high debt ratio when acquiring investments (leveraged buy-out). The purchase is largely financed by borrowed capital, which is secured by the assets of the target company. Collateral includes pledges of shares, property assets and industrial property rights. This leverage effect of the borrowed capital is intended to help maximise the return on the investment.
The involvement of the target company's management plays a special role in PE transactions. Managers are often involved in the success of the target company through direct shareholdings or virtual share programmes. This strengthens commitment and the focus on common goals. On exit, the stake is ideally sold at a profit - either to a strategic investor or another financial investor. Alternatively, there is the option of taking the target company public. Exit planning is a central component of the investment strategy from the outset.
PE transactions are also characterised by a high debt ratio when acquiring investments (leveraged buy-out). The purchase is largely financed by borrowed capital, which is secured by the assets of the target company. Collateral includes pledges of shares, property assets and industrial property rights. This leverage effect of the borrowed capital is intended to help maximise the return on the investment.
The involvement of the target company's management plays a special role in PE transactions. Managers are often involved in the success of the target company through direct shareholdings or virtual share programmes. This strengthens commitment and the focus on common goals. On exit, the stake is ideally sold at a profit - either to a strategic investor or another financial investor. Alternatively, there is the option of taking the target company public. Exit planning is a central component of the investment strategy from the outset.
