Private Equity Minority Investments - Universität St.Gallen

Chapter II: Theoretical FoundationsReasons for PE FinancingGrowth /ExpansionAcquisitionsBridge FinanceAdd. Funding /DiversificationExamples‣ Expansion intonew markets /geographies‣ Increase ofproductioncapacity‣ Investments intonew technologies /product lines‣ Financing ofstrategicacquisitions‣ Realization ofsynergies‣ Bridge financeuntil favorableIPO window‣ Signalingconfidence infirm valiation‣ Increased equitycushion facilitatesaccess to add. debt‣ Lower cost of debt‣ Diversifiedfunding baseLiquidity /Turnaround‣ Reduction ofdebt‣ Increase ofliquidityChanges inShareholdersBase‣ Exit of certainshareholders‣ Reduction offragmentation‣ Resolution ofconflictsSuccession‣ Succession insteps / gradualtransitionFigure 10: Reasons for private equity financing3.2.2 Value-Added ServicesPrivate equity investors provide capital and value-added services to theirportfolio companies. 137 The latter include (i) assisting the controllingshareholder in monitoring management, benchmarking businessperformance internally and externally, and requesting board accountability;(ii) helping to shape the corporate vision, setting ambitious goals, anddeveloping appropriate strategies, 138 identifying and evaluating businessopportunities to enhance firm value, bringing in ideas for add-oninvestments, making critical strategic decisions (e.g., on acquisitions,strategic alliances, investments, disinvestments); (iii) attracting key137Indeed, private equity entails far more than merely the financing of corporate activity by aninvestor as assumed by the Swiss Federal Supreme Court in its decision of 21 November2003, 4C.143/2003 (E. 3.3). Cf. EILERS/KOFFKA/MACKENSEN, p. 7, N 14; EHRAT, PrivateEquity, p. 179; GRONER, p. 8 et seq.; KOWATSCH, p. 140; TREZZINI, p. 39 et seq.; DAVIDSON,p. 177 et seq.; LEVIN, § 103; SAHLMANN, p. 473.138Strategy is understood as the definition of long-term goals and the planning of measures toachieve those goals, see RUPPEN, p. 94.31