Private Equity

Private equity has become a mature industry. The number of investment companies and the capital of private equity funds has risen sharply over the past 20 years. In addition to private equity funds, family offices, private investors and international investment companies are also entering the German-speaking market.

‘Good’ acquisition targets are still rare. They are increasingly being marketed professionally, even in the small and mid-market segment. Purchase prices have risen sharply. Competition for these acquisition targets has increased. Investors must familiarise themselves with new investment projects at a very early stage and invest time and money in them.

In view of the high purchase prices, approaches that rely only on the use of debt and tax optimisation are not enough. They need to be supplemented by convincing growth and acquisition strategies (e.g. buy and build) so that the invested capital generates sufficient return in the end. This is one of the reasons why operational partners, investment managers and external consultants are increasingly used in the ongoing support of portfolio companies with the aim of increasing the value of the portfolio companies and being available to the management of the portfolio companies as advisers.

CODEX Partners offers comprehensive consulting services for investors: searching for new investments (‘platform building’) to find new investments for investors, undertaking commercial and operational due diligence, implementing growth strategies for portfolio companies as well as operational improvement measures. All in all, CODEX Partners draws on experience from more than 500 projects.

Private equity funds are asset collection vehicles managed by private equity firms. They collect capital and invest it in stakes in companies held by private owners (as opposed to stakes in listed companies). The aim is to successfully develop the companies in which private equity funds invest, together with the management, so that they can later be sold back to new shareholders at a profit. 

Usually, various institutional investors, banks, family offices, private investors, pension funds and insurance companies invest in private equity funds. The fund manager (general manager) usually also invests in the private equity fund. The fund manager receives an annual management fee. In addition, the fund manager participates in the increase in value of the companies in which the fund has invested.

Private equity funds pursue a specific investment strategy, e.g., investments in companies in certain industries, regions or in companies in so-called special situations (e.g., restructuring cases). In general, private equity companies are looking for sustainable business models that show stable growth in the long term. The value development of a company can also be increased through company acquisitions (so- called add-on acquisitions).

Private equity investments are attractive due to their high return potential. Private equity funds always invest in several companies, which spreads the risk. Compared to investments in shares of companies listed on the stock exchange, a private equity fund, as the main shareholder of a privately held company, has considerably more influence on its performance. As a result, significantly higher returns can be earned than in the stock market.

However, investments in private equity funds are also associated with risks that must be carefully weighed. Private equity is risk capital, as the risk of investing in typically medium-sized companies tends to be higher than investing in large, listed companies. Private equity funds are usually closed-end funds with a term of between 7 and 10 years.

Private equity funds specifically seek to invest in privately held companies whose value can be promisingly increased and support the management of these companies in their value development by developing a joint growth strategy and investing in growth measures.

There are different types of private equity companies. In general, they are divided into the following 3 private equity types:

  1. Venture Capital
    The provision of equity capital to young companies. This is used to establish or expand business operations. Since companies are often very small after their foundation, do not yet make a profit and their development on the market is uncertain, venture capital investments are a particularly risky investment strategy. The advantage here is that investors can receive very high returns if the company is successful.
  2. Buy-Out
    In contrast to venture capital, investors participate in companies that are already established on the market. Since the target company is no longer in the start-up phase, the risk is lower compared to venture capital investments. In buy-outs, both equity and debt are usually used to finance the investment.
  3. Turnaround
    In the turnaround strategy, companies in crisis are taken over by private equity companies and restructured (cost reduction, sale/closure of unprofitable parts of the company, sales increase, etc.). The return on investment depends on the success of the restructuring of the company.

Private equity is the partner of entrepreneurs and ensures that entrepreneurs have an attractive alternative when they retire from the role of shareholder and that managing directors have the opportunity to step into the role of co-partner and co- entrepreneur. Moreover, private equity helps existing companies to modernize and stimulates their growth. Through its long-term investment strategy, private equity supports the development of sustainable businesses, creates sustainable jobs and contributes to economic development.

In addition to the provision of capital, company owners benefit from a large pool of experience of private equity investors. Advantages include extensive know-how and many years of experience in the field of company development, as well as access to already existing networks and distribution channels.

No. Owners do not have to leave the management of the company in the case of private equity investments. On the contrary, private equity investors usually like to see the owners to remain in the company. Often, transition periods are also planned for an exit from management.

Entrepreneurs are of great interest to private equity investors because they have industry know-how and valuable networks and know their company from "inside".

Your contact persons for private equity