Private Equity Minority Investments - Universität St.Gallen

Chapter II: Theoretical Foundationsprivately held (not traded on a stock exchange) 55commonly called portfolio companies. 56firms, which areThis dissertation focuses on organized private equity, 57 that is, privateequity funds 58 that function as specialized intermediaries raising capitalfrom a limited number of institutional 59 and well-funded private investorsand investing the pooled funds in selected portfolio companies. 60 Thetypical duration of private equity funds is ten years with a possibleextension of two years. 61 Private equity funds are managed by fundmanagers or advisors who provide advice to the private equity funds theyorganize and interact with the portfolio companies on their behalf. 62Through these fund managers, private equity funds, in addition to investingcapital, regularly provide value-added services to their portfolio firms. 63 Forexample, fund managers support and advise management on strategic,operational, financial, and governance issues drawing on their professionalexpertise, experience, ideas, and business contacts. In return, PEMIs ask forconsiderable control and participation rights. PEMIs seeking activeparticipation in corporate decision making are characterized as activeshareholders. MÄNTYSAARI defines active shareholders as those who“operate the business or at least be vocal, influence company decisions anduse their voting and other rights.” 64 Passive shareholders, on the contrary,are merely financial investors who rely on corporate governance rules,55At the time of the investment, the target company may be publicly listed, but with plans to‘go private’ shortly thereafter, see EHRAT, Private Equity, p. 179; BADER, p. 10. Also, privateequity investors invest in listed companies, so-called private investments in public equity(“PIPE”). In this case, however, the securities bought are typically not publicly traded, seeLEVIN, § 103; TREZZINI, p. 22. Some authors also include certain types of investments inpublicly traded stocks in their definitions of private equity, e.g., FRICK, § 1, N 31 et seq.56See EVCA, Glossary, “Private equity”; GRONER, p. 1; EHRAT, Private Equity, p. 179;DAVIDSON, p. 21; VON SALIS-LÜTOLF, Finanzierungsverträge, § 2, N 40; for furtherreferences, BADER, p. 10.57Other types of investors such as business angels, hedge funds, and industrial, public, and debtinvestors are overlooked in the following. See on the organized private equity market,FENN/LAING/PROWSE, p. 2 et seq. On corporate venture, joint ventures, hedge funds, and debtfinance, see FRICK, § 1, N 51 et seqq.; on industrial and public investors, see TREZZINI, p. 33et seq.58In this dissertation, the term fund refers to a pool of investments and not a certain legal form.59Such as pension funds, investment companies, insurance companies, banks, family offices,and foundations/endowments. For the term institutional investor, see FORSTMOSER, Exit oderVoice, p. 788 et seqq.60See FRICK, § 5, N 342, 354 et seqq.; EHRAT, Private Equity, p. 179; GRONER, p. 2 et seq.;WEBER, Rechtsprobleme, p. 38; FENN/LAING/PROWSE, p. 2; KLÖCKNER, p. 22.61See FRICK, § 6, N 394; KLÖCKNER, p. 23; LEVIN, § 103 (mentioning 10 to 13 years).62See TREZZINI, p. 32 (“Sie handeln typischerweise weder in eigenem Namen noch auf eigeneRechnung”); KLÖCKNER, p. 23, FN 82; FRICK, § 5, N 356; MCCAHERY/VERMEULEN, p. 171.63See Section II.A.3.2.2.64MÄNTYSAARI, Comparative Corporate Governance, p. 5.17