The term "private equity" has to be distinguished from listed equity and includes both venture capital (in the form of so-called "early stage financing" and "later stage financing") and buy-outs and mezzanine financing. 3Q|Law advises entrepreneurs and companies wishing to use these forms of financing in the preparation, structuring, negotiation and implementation of the German M&A sale transaction.
German MBOs and MBIs have a number of special features, particularly with regard to the question of financing the purchase, because the prospective buyer(s) often lack the equity required for the company purchase in Germany. In addition to purchase price financing by banks, purchase price financing by the seller in the form of deferrals ("vendor loans") or so-called "earn-out arrangements" (i.e. earning the purchase price from the future earnings of the company) plays a major role here. In the area of German small and midsize companies (SME sector in Germany), however, the necessary equity is also increasingly being provided by a private equity investor. Often, the assets of the target company are then used as collateral in the context of the additionally raised debt financing, which makes various legal and tax arrangements necessary.
Pursuant a study of PwC, however, 56% of the SMEs surveyed said they did not know or did not know exactly what private equity actually meant, whereas only 9% had a precise idea of this form of financing. A good overview of German private equity and German private equity investors can be found at the Bundesverband Deutscher Kapitalbeteiligungsgesellschaften.
The interest of private equity companies in Germany and that of their capital providers (primarily pension and annuity funds, life insurance companies, corporations, banks, but also international investors) is that the capital invested should generate the highest possible return in the medium term, with this usually also being met by the so-called "exit", i.e. the sale. Private equity investors therefore already plan their exit in a targeted manner when acquiring the investment.
However, it is certainly undeniable that the typical German medium-sized company and financial investors do not fit together "culturally" without further ado. However, it should not be misunderstood - and this realization seems to be increasingly gaining ground in the German SME sector as well - that the SME in Germany benefits not only from the capital granted, but above all from the transfer of knowledge and a certain degree of professionalization, for example in the form of a new advisory board or in strategic decisions.