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Private equity as growth accelerator

Wissenschaftliche Studie 2010 11 Seiten

BWL - Investition und Finanzierung


Table of contents

1. Introduction

2. Turnover categories

3. Expectation of return on equity

4. Probability of new jobs

5. Key performance indicators

6. Conclusion for hypothesis

1. Introduction

The demand in Germany for private equity (PE) has remained high for more than ten years. Until 2008, industry associations assumed that this would impart further momentum to the market, but the strong fundraising of private equity funds recently lost steam.[1] Particularly in times of crisis, private equity companies’ activities are constantly under attack.

In numerous studies and publications – particularly in publications from private equity companies themselves – it is pointed out that investment companies have been supporting the technological and structural transformation of the German economy for decades by investing in fast-growing companies and industries. It is often proclaimed that in this way a contribution was made to restructuring and modernising established industries and developing new economic sectors. By identifying sustainable companies and providing them with additional capital, they secure existing jobs and create new ones over the long term, the studies claim.

At the end of 2006 the PE companies registered in Germany held shares in about 6,000 small and mid-sized companies; in total, these investments generated a volume of about EUR 23 billion. These companies constituted about seven percent of the German gross domestic product in 2006 and earned almost EUR 190 billion annual sales with more than 960,000 employees.[2] The positive economic significance is cited in many publications.

A central hypothesis can thus be formulated: PE-financed companies develop better than average, both as regards the number of employees and in terms of their financial indicators.

An empirical, quantitatively and qualitatively oriented study of the performance of private equity transactions in Germany shows whether private equity transactions represent a promising possibility to further develop a company and act as a growth accelerator or not.[3]

2. Turnover categories

The investment volume of about EUR 23 bil. in ca. 6,000 companies in 2006 first suggests quite a high significance of the private equity sector for the German economy, and becomes of course even more significant, if – as presumed in the hypothesis – the investments developed better than average. If one regards the turnover categories in which the PE companies get involved, then the study show that the sector of small and mid-sized companies with annual turnover of EUR 20-50 mil. is the most pronounced with 42%. Micro-enterprises with less than EUR 1 mil. turnover are still not in PEs’ scope. The segment below EUR 20 mil. annual turnover does constitute a significant share with 28%, as do investments in larger companies with more than EUR 50 mil. turnover.

Figure 1: Turnover categories of the investments[4]

illustration not visible in this excerpt

If one asks the relevant private equity companies how important they consider themselves and their industry for the success of the companies in which they invest, then 71% of those surveyed, conclude that they are important to crucial for success; see Figure 2.

Figure 2: Estimation of the importance of PE for investments[5]

illustration not visible in this excerpt

3. Expectation of return on equity

The private equity asset category has led to keen growth rates in the past ten years, not least because of the high prospective returns. The expectation of the PEs from the returns on their investment are high: 42% of the companies surveyed expect 15-25% return on equity deployed per year. 11% of the companies even expect returns of between 25% and 50% p.a.

Figure 3: Expectation of return on equity[6]

illustration not visible in this excerpt

4. Probability of new jobs

If one considers the question of to what extent the number of employees changes positively during the term of the investment, that is, whether more jobs were created after the PE entered, a significant picture can be seen:


[1] Bundesverband Deutscher Kapitalbeteiligungsgesellschaften (2008).

[2] IFD (04/2007). Initiative Finanzstandort Deutschland. Herausgeber IFD.

[3] Own research (2010)

[4] Own research (2010)

[5] Own research (2010)

[6] Own research (2010)


ISBN (eBook)
739 KB
Growth Key Perfomance Indicators Return on Equity Performance Empirical Private Equity Study



Titel: Private equity as growth accelerator