This paper gives an overview of private equity. Functionality of investing firms, possible applications of private equity, and its influence on portfolio-companies is in the focus of interest. The topic is investigated by analysing the German market and describing private equity as a controversial financial instrument. Thereby also reservations are portrayed that exist in the German society as well as in the German “Mittelstand” (small and medium sized businesses). The paper concludes with presenting the author’s individual view on private equity and a positive outlook on development of private equity in Germany.
Table of Contents
1) Introduction and background
2) Methodology
3) Particularities of the German market
3.1) Facts and numbers
3.2) Economic and social causes
4) Structure and refinancing of the market participants
5) Characteristics of investment
5.1) Share of participation
5.2) Form of capital
5.3) Life cycle of the target company
5.4) Exit
6) Intents and actions of private equity firms and their investors
7) Decision-relevant factors for target companies
8) Discussion: the impact of private equity on target-companies
9) Limitations
9.1 Restrictions of words and time
9.2 Methodical Limitations
10) Conclusion
Research Objectives and Key Topics
This independent study aims to provide a comprehensive overview of the private equity (PE) industry, specifically focusing on the German market. The paper seeks to demystify private equity by analyzing the functionality of investment firms, exploring their investment and management policies, and examining the impact of PE on portfolio companies, particularly within the context of the German "Mittelstand."
- Functionality and operational mechanics of private equity firms
- Structural and economic particularities of the German private equity market
- Investment characteristics including capital forms and target company life cycles
- Controversial aspects such as leveraged finance, asset-stripping, and active ownership
- Economic impact of private equity on target company performance and development
Excerpt from the Book
3) Particularities of the German market
The German PE market differs in size and importance from mature markets such as Great Britain or the United States of America. Table 3.1 compares the size of PE investment with the size of the Gross National Product (GNP) in Europe and the USA. It shows that In relation to the GNP the share of PE in Great Britain is six times as high as in Germany.
Indeed, one has to regard that the German market is still young. Private owned PE Firms exist in Germany only since 1983, when venture capital euphoria came from the USA to the country (see BVK, 2007b).
However, instead of catching up with high rates Germany’s market growth is still under average as shown in the following table.
Summary of Chapters
1) Introduction and background: Introduces the research object and the author's motivation, acknowledging the controversial image of private equity in Germany.
2) Methodology: Explains the structure of the paper as a handbook to provide an overview of the sector, despite limited specialized literature.
3) Particularities of the German market: Analyzes the quantitative status of the German market compared to others and identifies economic and social causes for its development.
4) Structure and refinancing of the market participants: Discusses the origins of current market participants and the sources of their financing.
5) Characteristics of investment: Details key operational aspects of PE, including participation shares, capital types, target company stages, and exit strategies.
6) Intents and actions of private equity firms and their investors: Examines the strategies used by PE firms, including active ownership, leverage, and asset-stripping.
7) Decision-relevant factors for target companies: Explores why companies seek PE, focusing on capital needs, succession planning, and corporate restructuring.
8) Discussion: the impact of private equity on target-companies: Discusses the controversy regarding whether PE aids company development or risks their insolvency.
9) Limitations: Addresses the constraints regarding word count, time, and the non-representative nature of some sources.
10) Conclusion: Summarizes the author's perspective on private equity as a useful "lever" for corporate improvement and provides a positive outlook for the German market.
Keywords
Private Equity, Germany, Mittelstand, Investment Firms, Venture Capital, Mezzanine Capital, Buy-outs, Active Ownership, Leverage Effect, Asset-stripping, Portfolio Companies, Fundraising, Financial Markets, Corporate Restructuring, Capital Allocation.
Frequently Asked Questions
What is the primary focus of this paper?
The paper provides an overview of the private equity industry, focusing specifically on how it functions, its influence on target companies, and its role within the German economic landscape.
What are the main thematic areas covered?
Key areas include the structure of the German PE market, investment characteristics, different forms of capital, the life cycle of target companies, and the debate surrounding the impacts of "active ownership."
What is the central research question?
The paper aims to demystify private equity by asking how PE firms operate, what investment and management policies they pursue, how they generate returns, and what impact they have on capital recipients.
Which scientific methodology is applied?
The research is structured as a handbook, drawing on market data, professional questionnaires, and existing academic studies to provide a comprehensive view of the sector.
What topics are discussed in the main body of the work?
The main body covers market particularities, structure and refinancing of participants, investment characteristics, intents and actions of PE firms, and a discussion on their impact on target companies.
Which keywords characterize this study?
The study is characterized by terms such as Private Equity, Mittelstand, Buy-outs, Active Ownership, Mezzanine Capital, and Corporate Restructuring.
How does the German market compare to the US or UK?
The study highlights that the German PE market is significantly smaller in relation to its GNP compared to mature markets like the UK and USA, and notes its relatively recent development.
What is the author's stance on the "locust" critique?
The author argues that while "locust-style" behavior can be problematic, PE firms generally act as catalysts for corporate improvement and that their role is becoming increasingly accepted as a normal part of the financial landscape.
- Quote paper
- Gerd Rainer Meiners (Author), 2007, Private Equity in Germany, Munich, GRIN Verlag, https://www.grin.com/document/90361
