Private Equity Minority Investments - Universität St.Gallen

Chapter II: Theoretical Foundationstemporary vacancies. 144 Through their professional expertise, experience,and business contacts, private equity investors are in a position to makeimportant contributions to their portfolio firms’ economic success. Becauseof the non-financial added value they provide, the identity of the privateequity investor is of immense importance as it is not only critical thatcapital per se is provided, but equally who provides such capital. 145Management‣ Recruitment/Development of keymanagement personnel‣ Incentive mechanismsOther‣ Establishment of contacts‣ Function as refereeSupervision & Performance Analysis‣ Monitoring performance‣ Internal & external benchmarkingof business performance‣ Board accountabilityPrivate Equity Value-AddStrategic Support‣ Shaping of corporate vision‣ Strategy development & business ideas‣ Identification of business opportunities‣ M&A expertise‣ Advice on exit strategiesCorporate Governance Support‣ Legal form of organization‣ Adaptation of organizational structure‣ Enhancement of control, risk management,and information systemsOperational Support‣ Cost management‣ Margin development‣ Working capital management‣ Business process re-engineering‣ Product management and innovation‣ Marketing strategies‣ Identification of new customers/suppliers‣ Asset management‣ Tax optimizationFinancial Support‣ Capital structure adjustment‣ Renegotiation of financing terms‣ Debt capital raisings & structured finance‣ Hedging‣ Rating analysisFigure 11: Private equity added value3.2.3 Potential DrawbacksEven if only a minority, private equity involvement causes a degree ofcorporate power to shift into the hands of an external investor, therebylimiting the owner family’s influence and independence to a certainextent. 146 Family-specific views and convictions are not as easily enforcedwith outside private equity investors. Indeed, ACHLEITNER, SCHRAML, andTAPPEINER, in examining private equity investments in German familyfirms, identify a fear of losing independence as family firms’ mainhesitation towards private equity minority investments. 147 Moreover, owner144Cf. DEIBERT, p. 25; SCHEFCZYK, p. 111; RUPPEN, p. 101 et seq.; WEBER, Rechtsprobleme, p.23.145See MEIER-HAYOZ/FORSTMOSER, § 3, N 9 et seq.; MEIER-HAYOZ/SCHLUEP/OTT, p. 301.146See STRIEBEL, p. 63; HOHMANN, p. 74 (citing a study in which loss of control is cited as theprimary reason not to seek private equity).147ACHLEITNER/SCHRAML/TAPPEINER, Familienunternehmen, p. 25; also cf. SILVA, p. 240.33