M&A Glossary
Private equity: who they are and how they buy
Private equity funds invest in mature, usually profitable companies, intending to grow them and sell within a few years. For an owner they are one of three types of buyer, alongside a trade investor and the management team.
How they work
A fund raises capital from investors, buys stakes in companies, spends several years building their value and sells at a profit. The horizon is typically three to seven years, and the expected return is higher than in listed markets, because the risk is higher and liquidity lower.
From a seller’s point of view the key fact is that a fund does not buy a company in order to own it. It buys in order to sell it again. Everything it does after the transaction follows from that.
Fund versus trade investor
Private equity fund
- usually keeps the team and the brand
- often wants the owner to stay 2-3 years
- offers an equity package to management
- pays for growth potential
- will exit, and that has to be priced in
Trade investor
- usually integrates the company into its structure
- often does not need the owner afterwards
- the brand may be retired
- pays for synergies, sometimes more than a fund
- stays for good
The Polish market in practice
Most funds active in Poland have a minimum ticket. Below transaction values in the low tens of millions of zloty the conversation usually does not start, because the cost of review and execution is much the same regardless of size. Smaller companies are left with a trade investor, a search fund or a management buyout. That is not a flaw in the company, it is arithmetic on the fund’s side.
Frequently asked
Questions about private equity.
How does private equity differ from venture capital?
Stage and risk. Venture capital funds early, often unprofitable companies and accepts that part of the portfolio will fail. Private equity buys mature, profitable businesses, usually majority stakes, and expects growth rather than survival.
Will the fund take control?
Usually yes, where it buys a majority. Day-to-day management normally stays with the team, but decisions on investment, borrowing and key appointments move to board level.
Will a fund pay more than a trade buyer?
There is no rule. A trade buyer can pay more because it counts synergies a fund does not have. A fund can be the better answer where the owner cares about keeping the brand and the team, or wants to stay in with a minority stake.
See also
- M&A glossary - 72 terms used in transactions
- How we run a company sale
- How we work and how we charge