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

Studienarbeit aus dem Jahr 2010 im Fachbereich BWL - Investition und Finanzierung Note: 27 FOM Essen Hochschule für Oekonomie & Management gemeinnützige GmbH Hochschulleitung Essen früher Fachhochschule Veranstaltung: Investment and Controlling Sprache: Deutsch Abstract: This assignment is part of the MBA studies at the University of Applied Science inEssen (FOM Hochschule für Oekonomie Essen) and covers the subject InternationalFinance 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. PEinvestors expect high returns but it could be shown by taking independent data intoaccount that it is highly questionable if the returns of PE investments are always highercompared to other forms of investments. Furthermore there is the risk of a total losswhich is higher for PE investments than other forms of investments especially due tothe information asymmetry between PE investors and PE issuers.Looking at it from the perspective of PE issuers PE investments inject fresh capital intotarget companies with often a high percentage of debts. This capital can be used forexpansion and innovation. However PE investors expect high returns and may useassets of the target company to refinance debts which have been taken in order tofinance the PE investment.Furthermore PE companies will gain managerial control within the target companythrough which decisions are aligned with the objectives of the PE investor. This canalso 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 bothsides because the outcome of an evaluation strongly depends on the statistical methodthe observed time span the choice of statistical data and the personal viewpoint.