Private equity funds raise money from institutional investors such as insurers and pension funds. When buying, they finance the price with equity and bank loans. After a few years, they sell the company on, for example to a strategic buyer or another investor. According to the BVK (German Private Equity and Venture Capital Association), investment firms invested €11.3 billion in Germany in 2024, of which €5.5 billion went into buy-outs.
A financial investor is interesting for a mid-sized company when no successor is available within the family or management. It usually retains the location, brand and team and expands through acquisitions (buy-and-build). It often requires the seller or management to reinvest, so that interests are aligned.
For the owner, the sale is not a complete farewell. A rollover stake participates in the later exit. In Germany, the funds themselves are subject to the Capital Investment Code (KAGB). Their purchase decision is based on thorough financial, tax and legal due diligence.
Example
Hypothetical example: An investor buys a company for €20 million, financed with €10 million of equity and €10 million of debt. The seller takes a 10 percent stake in the equity, i.e. €1.0 million. If the equity is valued at €25 million at exit, the seller's stake is worth €2.5 million.
Sources
- Statistik Deutschland: Investitionen, Fundraising und Exits am deutschen Beteiligungsmarkt, Bundesverband Beteiligungskapital (BVK)
- Beteiligungsmarkt 2024: VC erholt, Buy-outs weiterhin belastet, Unternehmeredition
- Kapitalanlagegesetzbuch (KAGB), § 1 Begriffsbestimmungen, Bundesministerium der Justiz / gesetze-im-internet.de