Private equity managers work in capital investment companies where they invest in companies usually with the aim of selling them with a profit after a few years. There are different kinds of PE companies. The classical ones set up a fund that buys companies or provides them with money with the aim to generate a financial return after a certain period. These funds last typically for round about 10 years.
Another concept is the so-called family equity investor who acts in an entrepreneurial, long term and value-oriented manner. Family equity collects money from selected co-investors and with this money buys either shares or whole companies. Family equity investors rather operate with what is called “deal by deal” financing. The goal of these investors is always to take forward the company they have acquired providing their ideas and experience. In contrast to the classic PE company, the family equity investor is usually committed long term. In many investments, he works with an open time horizon. That means he’s not under any pressure to sell a company after a certain period with the highest possible return. Instead, the family equity investor supports the companies with his management know-how and helps them make their strategic decisions. These strategic decisions typically aim at enlarging the product portfolio or internationalising the business to make the company more profitable or bigger. This means that the investor negotiates with company sellers at eye level, because typically he is an entrepreneur himself. The aim is always to help the companies, which the investor now holds in his own portfolio, to prosper and grow. To achieve these goals, it is very helpful if not mandatory, that a family equity investor shares the values of family entrepreneurs and appreciates the entrepreneurial culture of medium-sized companies.
1. Find the right target
Private equity managers are engaged in all phases of an acquisition from the purchase to the resale of a company. The first step is to examine the possibilities and prospects of a future investment. There are different types of targets for an investor, depending on the current situation the company is in. The target situation is decisive insofar as it determines the strategy of the investor when considering an acquisition. It may be a situation where a company is growing, it maybe a situation where the company is not doing well and needs a turnaround. Very often there is a succession situation, especially in the field of medium-sized companies and family entrepreneurs. Or there may be a buy and build situation where the investor plans to buy several smaller companies and form a bigger group out of them to create value.
2. Types of financing
A very important point in every transaction is the financing. Very often the investor does a leveraged buy-out where he takes over most of the company. Or the investor funds the company with growth capital and takes over a minority position. Lastly, there is mezzanine financing which contains characteristics of both equity and debt financing. When it comes to financing, the investor always works together with financial and management consultants. This of course always includes an extensive and detailed analysis of all company data.
3. When and how to enter the industry
For a young professional, there are many options to enter the private equity industry. The first opportunity is to do an internship at the end of his or her bachelor degree or while doing the master. Typically, private equity companies offer internships at least for two months and up to six months. An internship is of course a good opportunity for a student to get to know the company and for the company to get to know a future management talent or even a potential future employee. If it works well for both sides, there is a chance to join full time. This second step usually follows early after the master’s degree. More common is that you get in a full-time commitment after some years of business experience. It’s also important to know that the teams in private equity are very small and they don’t grow a lot. As there are not many open positions, there is a great deal of competition. The third opportunity to enter the private equity industry comes much later in your career, when you may have successfully managed a company as a CEO and then become an advisor, which is specialised in certain industries.