What is Private Equity?
The term Private Equity describes equity financing of operating companies which are generally not publicly traded on a stock exchange.
What are the advantages of Private Equity financed companies?
Private Equity is more than simply the provision of capital. Private Equity funds also actively exert support their portfolio companies. They invest their time, their know-how as well as their management capacity. Thereby they create additional value for the portfolio company. Thus, Private Equity could be also called entrepreneurial or intelligent capital.
Who invests in Private Equity and how does it work?
Mainly institutional investors (e.g. major pension funds, insurances, banks or wealthy individuals) are typically invested in a Private Equity fund. In the case of palero capital, these are European institutional investors and family offices.
How do Private Equity funds operate?
Private Equity funds have no operational activity; they invest their capital in companies operating in different industries. In a first step, Private Equity funds search their target companies according to specific investment criteria. Then, after a successful transaction they actively support the portfolio company providing all necessary resources ranging from management know how to fresh capital for further investments.
How does the Private Equity acquire businesses?
In a first step, Private Equity funds identify new investment opportunities. In general Private Equity investors draw thereby on their vast network (e.g. M&A advisors, accounting firms, private networks). In the course of the so called Due Diligence potential risks and potential opportunities are identified. The results of this Due Diligence and the business plan provided by the management are the basis for the determination of the purchase price and the negotiation of the purchase agreement.
How does Private Equity support the portfolio companies?
After a successful closing of a transaction the Private Equity investors closely supervise the portfolio company, they are part of the strategic decision making process. This kind of active support enables the portfolio company to benefit from all the existing know-how, management capacity, experience and network of the financial investor in order to tap its full potential.
How does Private Equity exit its investments?
Private Equity investors are regularly only investors for a defined time period; they are generally invested from three up to five years. palero capital is interested in a long-term and sustainable value enhancement of the portfolio company.
The portfolio company will be disposed after a successful value enhancement. There exist different types of exits:
- Disposal to a strategic investors (Trade sale)
- Disposal to the management (Management buy-in)
- Disposal to a financial investor (Secondary Sale)
What is the effect on the performance of the company held by Private Equity investors?
In general companies held by Private Equity investors have not only a better equity financing, but also a better operational performance (e.g. higher sales growth). This is also in line with several studies e.g. a survey of the BVK (German Private Equity and Venture Capital Association) and PWC.
Do private equity firms create or destroy jobs?
In general, the involvement of Private Equity funds has a positive effect on the overall employment. This is also in line with several studies e.g. a survey of the BVK (German Private Equity and Venture Capital Association) and PWC.
What does turn-around financing mean?
Turn-around financing enables companies to overcome operational problems (e.g. sales problem) and to further strengthen their position.
What does „carve-out“ mean?
A carve-out is the spin-off of a company or a business division from an affiliated group. In a carve-out situation important functions of a company (which were conducted before the transaction by the affiliated group) usually have to be re-established in the new target company.
What does „asset deal“ mean?
In an asset deal transaction, the buyer acquires not the shares in the target company, but directly the assets; among others fixed assets such as machines as well as current assets such as accounts receivables but also all agreements (e.g. personnel and customer agreements). At the same time the buyer also takes over all substantial liabilities such as pension liabilities and bank liabilities.
What is the meaning of the name palero capital?
Palero capital is a fantasy name based on the city district Palermo (Soho) in Buenos Aires, Argentina. According to the ZEIT magazine “Buenos Aires is for the 2k years the Berlin of the Nineties”. With all its creativity, diversity of colors, kindliness, this melting pot of different cultures has become in the course of the time one of the most attractive and successful district in whole South America. A turn-around of a special kind.