Critical analysis of Private Equity investments from the investors’ and the target companies’ point of view

Trabajo Escrito , 2010 , 33 Páginas , Calificación: 2,7

Economía de las empresas - Inversiones y finanzas

This assignment is part of the MBA studies at the University of Applied Science in
Essen (FOM, Hochschule für Oekonomie, Essen) and covers the subject “International
Finance and Controlling”.
The objective of this assignment was a critical analysis of Private Equity (PE)
investments both from the perspectives of PE investors and of PE target companies. PE
investors expect high returns, but it could be shown by taking independent data into
account that it is highly questionable if the returns of PE investments are always higher
compared to other forms of investments. Furthermore, there is the risk of a total loss,
which is higher for PE investments than other forms of investments, especially due to
the information asymmetry between PE investors and PE issuers.
Looking at it from the perspective of PE issuers, PE investments inject fresh capital into
target companies with often a high percentage of debts. This capital can be used for
expansion and innovation. However, PE investors expect high returns and may use
assets of the target company to refinance debts which have been taken in order to
finance the PE investment.
Furthermore, PE companies will gain managerial control within the target company
through which decisions are aligned with the objectives of the PE investor. This can
also include decisions regarding the future employment situation in the target company.
There cannot be an overall statement if PE investments are “good” or “bad” for both
sides, because the outcome of an evaluation strongly depends on the statistical method,
the observed time span, the choice of statistical data and the personal viewpoint.

Table of Contents

Executive summary

List of Abbreviations

List of Figures

List of Tables

Prologue

1 Introduction and problem definition

2 What is PE?
2.1 Definition
2.2 Short overview over the history of PE and its current situation in Germany ..

3 How does PE work?
3.1 Mayor players in the PE market
3.2 How is PE invested?
3.3 How is PE disinvested?

4 PE investments: The Perspective of PE investors
4.1 Returns
4.2 Risks of PE / VC investment
4.3 Lack of information

5 PE investments: The Perspective of PE issuers
5.1 Improved capital structure and room for expansion
5.2 PE investors as „Equity robbers“
5.3 Companies with succession problems
5.4 Management support & control
5.5 Loss of jobs in companies which are target of PE investments

6 Conclusion

References

Declaration

ITM checklist

• Universidad: University of Applied Sciences Essen
• Curso: Investment and Controlling
• Calificación: 2,7
• Autor: Jan Sickinger (Autor)
• Año de publicación: 2010
• Páginas: 33
• No. de catálogo: V177999
• ISBN (Ebook): 9783640999767
• ISBN (Libro): 9783640999958
• Idioma: Alemán
• Etiqueta: critical, private, equity