Private equity , German over-the-counter equity or private equity capital , is a form of equity capital in which the investment entered into by the investor cannot be traded on regulated markets ( stock exchanges ). The financiers can be private or institutional investors ; Often it is capital investment companies that specialize in this type of investment, which is why they are also called private equity companies (PEG).
If the capital is young and innovative company that will naturally but a high risk, and appropriate growth opportunities in it, it is called venture capital or venture capital ( English venture capital ). The corresponding institutional investors are called venture finance companies or venture capital companies (VCG).
In this form of private equity often (even the so-called venture capital or venture capital English venture capital ) spoken. Participation is characterized by the following points:
- There are still to be founded or just founded young companies.
- They are primarily young industries.
- The income from such a participation cannot be foreseen when the participation is started. Even more, they are associated with a relatively high risk , which can lead to the total loss of the capital invested. However, if it is successful, this is regularly offset by a significantly above-average return.
- The venture capital company (VCG) not only provides capital, but also management know-how to help the usually inexperienced company founders, but also to make the investment successful from the point of view of VCG. For this reason, the term intelligent capital is often used here .
The venture capital companies owe their justification above all to the fact that company founders in the start-up phase are often unable to raise the funds required for financing from their private assets . As a rule, credit institutions do not give loans to young companies due to the lack of credit protection . Therefore, this form of raising capital offers an alternative to traditional forms of financing.
Like the VCG, the private equity companies (PEG) also collect funds from institutional investors such as banks or insurance companies, in some cases directly from wealthy private individuals.
The investment strategy
The PEG specifically seek out companies with a favorable risk / return ratio. Characterized this situation is characterized on the one hand, that the ideal target company ( target ) high and stable cash flow has. In addition, it should have market entry barriers for potential competitors. With regard to its capital requirements for ongoing business, there are no major requirements (e.g. for new investments or research and development).
Private equity through leveraged buyout
PE transactions are often carried out in the form of a leveraged buyout ( LBO ) . This means that the participation is realized with a high proportion of outside capital . Even if the PEG has raised its own financial resources, it will largely use outside capital to participate. The purchaser's expectation in the LBO is based on the so-called leverage effect . A high return on equity - which is attractive for the PEG - can be achieved through the low use of own funds, as long as the return on total capital is higher than the interest on borrowed capital. The prerequisite is that the target company generates a sufficiently high free cash flow with which the liabilities are repaid.
Here is an example: Even if a PEG with a fund volume of EUR 1 billion acquires a stake at a price of EUR 400 million, it will only spend EUR 100 million from its own funds as far as possible; the remaining 300 million euros are financed by outside capital (usually a combination of bank loans and advances, bonds and so-called mezzanine capital ). This increases the return on the capital employed (leverage effect).
Investors in private equity funds
For banks, insurance companies, pension funds, wealthy private individuals or American private universities investing in PEGs, private equity funds are an opportunity to operate in the capital market without being held fully financially liable in the event of failure of individual investments. If the investors were to invest directly in the targets, they would have to reckon with a loss in the full amount of the investment in the extreme case of failure of the target due to the equity nature of the investment. Due to the diversification (investment in different targets) of the PEG, however, the risk of loss is distributed among all investors in the fund, so that if an investment fails, only the proportional loss is incurred by the individual investor, and if the PEG's investments are otherwise positive, this is due to profits is compensated from other holdings.
In addition, the contractual and participation structures of a PEG are not public, so that neither investments nor investors are known to the outside world and thus the social control over what is expected of the shareholders of a company is no longer applicable, in the event of a loss over the original investment funds for to provide the continued existence of the company concerned (additional capital). In the case of a publicly known participation in a company, investors may have to accept the complete loss of their investment due to their social responsibility and to protect their commercial reputation and are also urged to guarantee the continued existence of the loss-making company through guarantees or payments - at In contrast, the PEGs preserve the investors anonymity and are thus protected from such financial liability, which is bought at the price of substantial fees for fund management and disproportionate profit sharing for the benefit of the fund initiators.
As part of so-called management buy-outs ( MBO ) , established companies or parts of them are taken over by the existing management. Since the individual managers i. d. If you are usually unable to raise the purchase price, they turn to private equity firms. These participate according to the above. Model at the company. As a result, the PEG and management are jointly involved in the company, whereby the management usually enjoys more favorable conditions and can therefore usually generate a capital gain more quickly than the PEG.
Private equity firms
While private equity firms, which are also known as financial sponsors in technical jargon , have been active in the Anglo-American economic area since the 1980s, these financial investors have also been increasingly active in Europe since 2000.
Industrial companies and insurance companies are increasingly active in this area. Since many established companies are only open to institutional investors or very wealthy private individuals, a fund segment for small investors has also emerged in recent years. Most of these so-called retail funds are designed as closed funds that reinvest in large private equity funds as part of a fund of funds concept, but this leads to a double cost structure.
The global share of private equity firms in company acquisitions in 2000 was 3 percent. In 2004 it had risen to 14 percent with a volume of 294 billion US dollars. In order to be able to buy very large corporations, the private equity companies sometimes form bidding associations.
As a result of the US real estate bubble and the subprime market crisis in 2007 , the business of private equity companies collapsed overall. In 2009 the volume of the announced transactions in Germany was only 1.1 billion euros - a decrease of more than 80 percent compared to the previous year.
The volume of deals announced worldwide was just USD 9 billion in April 2009, after having been around USD 120 billion two years earlier, at the height of the private equity boom.
The locust debate
In Germany, private equity as a form of equity financing has come under public criticism. At the end of 2004, the term “locusts” was widely used as a metaphor. In April 2005, the then SPD chairman Franz Müntefering made a comparison with “swarms of locusts”; The background to the statement was the sale of the Grohe company from a London holding company to a consortium, which was taking place at the time . The historian Michael Wolffsohn, professor at the Bundeswehr University in Munich, compared these animal comparisons and Müntefering's criticism with the anti-Jewish agitation of the Nazis.
(Manager) Regulation by the EU
In response to the euro financial market crisis in 2010, the European Parliament adopted Directive 2011/61 / EU on Alternative Investment Funds Managers (AIFM ) in November 2010
. The aim of this guideline is, among other things, the regulation of private equity funds and hedge funds. It should be implemented in national law in all European member states by July 2013.
With the AIFM Implementation Act from August 2013, various new regulations apply. All funds are now subject to the supervision of the Federal Financial Supervisory Authority (BaFin).
Venture Capital and Private Equity
|Comparison criterion||Venture capital||Private equity (buyout)|
|Control / domination||mostly minority stake||mostly majority stake|
|Cash flow||in the associated company||to the previous owner (= seller)|
|Focus of participation||young and innovative growth companies||established medium-sized companies, partly also large corporations|
|Holding period of participation||five to seven years||three to five years|
|Degree of influence||high impact on operational business||Influence on the operational business|
|Use of outside capital||rather low||high|
|Risk level of the investment||very high||lower than with VC, depending on the target company|
- Public-private partnership and public reform management
- Infrastructure Fund
- Equity stake
- List of the largest private equity firms
- E. Philip Davis, Benn Steil: Institutional Investors. MIT Press, Cambridge MA 2001, ISBN 0-262-04192-8 .
- Stefan Jugel (Ed.): Private Equity Investments. Practice of investment management. Gabler, Wiesbaden 2003, ISBN 3-409-12296-6 .
- Thorsten Gröne: Private Equity in Germany. Evaluation of the Value Creation Potential for German Mid-Cap Companies (= publication series of the ESB Research Institute. Vol. 34). ibidem-Verlag, Stuttgart 2005, ISBN 3-89821-620-9 (also: Reutlingen, European School of Business, diploma thesis, 2005).
- Michael Busack, Dieter G. Kaiser (Ed.): Handbook Alternative Investments. Volume 1. Gabler, Wiesbaden 2006, ISBN 3-8349-0151-2 .
- Michael Busack, Dieter G. Kaiser (Ed.): Handbook Alternative Investments. Volume 2. Gabler, Wiesbaden 2006, ISBN 3-8349-0298-5 .
- Christian Diller: Private Equity: Return, Risk and Market Influencing Factors. An empirical analysis of private equity funds (= entrepreneurial finance and private equity. Vol. 7). Uhlenbruch Verlag, Bad Soden 2007, ISBN 978-3-933207-58-6 (At the same time: Munich, Techn. Univ., Diss., 2006: Return, risk and market influencing factors of private equity. ).
- Karsten Löw, Daniel A. Spitze: Basics and basic concepts of private equity transactions. In: Marburg Law Review. Volume 1, 2008, ISSN 1866-4415 , pp. 7-13.
- Website of the Federal Association of German Private Equity Companies (BVK)
- Expert report 2005/2006 Seventh chapter: Capital market and financial intermediaries: corporate finance in transition (PDF; 364 kB)
- Study: Private Equity in Europe: Buyouts Support Growth, Startup Financing Crashed (PDF; 388 kB)
- Graphic: Assets of private equity funds and volume of private equity deals , from: Figures and facts: Globalization , Federal Agency for Civic Education / bpb
- Driving the Shakeout in Private Equity (PDF; 618 kB) at bcg.com (English)
- The Global Venture Capital and Private Equity Country Attractiveness Index
- ↑ Study by the industry association EVCA - Private Equity in European Comparison Handelsblatt, December 14, 2006
- ↑ Peter Köhler: Private Equity: The End of a Golden Era. Handelsblatt, December 25, 2008
- ↑ Johannes Bockenheimer: Financial Investors - Discovery of Softness ( Memento of the original from April 4, 2010 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. . Süddeutsche Zeitung, March 31, 2010
- ↑ Thomas Meyer: Private Equity: Too early for an obituary (PDF; 331 kB). Deutsche Bank Research, June 3, 2009
- ↑ Michael Wolffsohn: Are animal comparisons anti-Jewish agitation like the Nazis? May 5, 2005, accessed September 21, 2019 .
- ↑ EU Directive: AIFM ( Memento of the original from June 26, 2011 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. (PDF; 971 kB), German version, May 2011