This dissertation attempts to analyse the effects of Private Equity funded ownership. In recent years a large number of companies have been acquired by Private Equity firms with the main objective of adding value by operational streamlining and thereafter make an exit with a profit after a period of 3-7 years. Through theoretical research and empirical tests, I have tried to determine if and how private equity ownership creates added value.
International studies of the performance of Private Equity owned companies reveal contradicting results partly due to different methodologies being applied. Recent American analyses indicate that the PE funds underperform S&P 500, when using data from the period 1980 to 2003. However the analyses clearly illustrate that the selection of the time period is a decisive factor when measuring the actual performance of the acquired companies. Companies acquired in the end of the 1990s generally show a notably higher performance than the stock index. A Danish analysis reveals that companies acquired by PE funds perform 16 percentage points better than the Copenhagen All-share Cap-index (OMXCCAP).
The value creation is addressed from a financial analysis perspective using pre and post transaction data. The effects of operational and financial restructuring activity are statistically examined using a sub-sample covering 10 out of 35 completed transactions in Denmark within the analysis period, which intentionally focuses on transactions taking place between 1997 and 2001. This allows a "clean" analysis, which eliminates the effects of the financial crisis from September 2008 and onwards.
The analysis shows that during the private equity ownership period, revenue of the target companies are often aggressively expanded while earnings from operations do not grow proportionally. In 30% of the analysed companies a significant reduction of Return On Assets takes place after the acquisition. In line with theory, the capital structure of the targets changes radically with an average increase in leverage from 46% to 78%. The Return On Equity follows the economic theory of the J-curve, showing significantly smaller ROE during the first years following the acquisition. With the analysis period covering only 5 years after the transactions take place, the Return on Equity ratio remains negative in year 5, though improving from its low level after the takeover. An additional 5 years would do justice to the findings, by improving the statistical foundation, since that would reveal, whether the PE firms can actually make the turn-around come true. As only 70% of the PE fund owned companies have been exited after 5 years, the analysis does not give the full picture, and due to the data quality of my analysis some of my conclusions might be questioned.
Besides restructuring of the companies there are numerous additional methods for the PE firms to create value. One method is to implement incentivising compensation schemes for management like stock options etc., which will reduce the principal/agent costs. Active ownership also seems to play an important role in the strategic development of the companies. New owners like PE firms often have easier access to additional capital, which facilitates acquisitive growth strategies, along with higher financial expenses. A higher debt ratio however increases the overall financial risk of the acquired company.
As margins and ROE following the acquisitions show a clear upward trend after some years, I assume that it is a question of time, before the PE funds could make their required exit IRR.
The objective of the dissertation was from a Danish perspective to prove the title: "Private Equity Firms: Value Creators or Value Destroyers?" With the limited amount of data available and looking solely at the findings in the report, I fail to reject the null-hypothesis that PE funds DO add value, and will have to conclude, as many professors and professionals have done in the past [1] , that timing is crucial and that slight modification in the methodology can alter the outcome of the analyses significantly. This emphasises that the analysis period should indeed have been extended, but with my limited access to data this has proven not to be possible within the framework of this dissertation.
CHAPTER 1: Introduction
1.1 Literature Review
In my search to determine whether or not private equity firms [2] add value to the targets, which they acquire, I have done extensive literature research to cover what has already been written on the topic. Various scientists, professors and key professionals have given their view on the leveraged buy-outs (LBOs) and management buy-outs (MBOs), using empirical tests on primarily past American or British transactions. As the reader will notice the literature used in this dissertation dates back to the 1980s where the LBO had its beginning [3] , and walks up to current time.
Kaplan (1989) proved with a sample of 76 completed MBOs in the period between 1980-86 that pre-buyout equity holders earned a median premium of 42% over the value reported 2 months before the buyout. Kaplan and Andrade (1997) later reviewed 31 highly leveraged [4] transactions of the 1980s and the sample indicated only a small increase in company value. Overall the analysis indicated positive market adjusted returns for the shareholders. Leland (1989) took the premium (based on Kaplan 1989) one step further by addressing the issue that the increased value associated with LBOs comes from the tax advantage of greater leverage. He states that the issue is not poor management, but the actual tax policy. The US tax code provides a powerful incentive to lever. As he further writes: "A deeply indebted economy is a fragile economy, subject to collapse in any substantial downturn of business" (ibid. p.24). According to him the solution lies in lowering corporate and capital gains tax, which will reduce the distortion between interest payments and dividends. Making dividends tax deductible will balance the effects, according to Leland.
Palepu (1990) used empirical tests and past academic articles to document that operating performance improves markedly following an LBO. Contradicting to what many might think, little evidence is given of widespread employee layoffs, wage reductions, or wealth transfers from bondholders. Smith (1990) arrived at the same conclusion using 58 completed American MBOs from 1978-86, showing that operating cash flow per dollar of book value of assets increase on average after an MBO, in absolute terms and in relation to non-MBOs in the same industry. The analysis indicated better working capital management after the transaction, but parallel cutbacks in head counts didn't seem to add value.
Lichtenberg & Siegel (1990) used the same methodology as Smith pooling data across 1981-86 involving 12,000 plants indicating a significantly higher productivity figure in the first three years after a buyout than before the buyout. They admit however that due to statistical error and poor raw data they can't justify whether the improvement is a cause of the buyout. They do nevertheless come to the conclusion that LBO companies are less R&D focussed. The same conclusion that Opler and Titman (1993) arrived at when reviewing 2,500 large companies. [5]
Jensen (1988) argued that LBOs increase the repayment burden and reduce the free cash flow, limiting the amount available for wasteful expenditures. As seen above LBOs have been found to improve performance in operating income (Kaplan 1989), operating cash flows (Smith 1990) and plant productivity (Lichtenberg and Siegel 1990). The primary value creation of LBOs appears to derive from operational efficiencies, i.e. a cost side focus rather than revenue focus.
Research further indicates that LBOs are not likely to be beneficial for a firm when its managers are not opportunistic and investing cash flows wisely. From an efficiency perspective, LBOs are more likely to occur in firms where a free cash flow problem exists and managers are not pursuing value enhancement strategies (Kochnar 1996).
Jensen's "free cash flow" hypothesis (1988) is the leading argument for what motivates LBOs. Target firms will have stable business developments, substantial cash flows (low growth prospects and high potential for future cash flow generation). Managers are likely to have incentives to spend free cash flows that will increase firm size, since that subsequently would lead to higher compensation. Opler and Titman (1993) provides evidence similar to the hypothesis raised by Jensen.
Halpern, Kieschnick and Rotenberg (1999) provides a contradicting view to the "free cash flow" hypothesis, since they argue that the net operating cash flow measure is misleading for a firm's free cash flow. "Consider two firms that are alike in their poor investment prospects and possess the same net operating cash flow. Firm A distributes those cash flows as cash dividends, but firm B reinvests them in operations. Clearly firm B is incurring the higher agency costs associated with its free cash flows, but this would be missed under the net operating cash flow measure" (ibid. p.288).
Their analysis shows two LBO categories according to management shareholdings: one with high prior managerial stock ownership and the other with low prior managerial stock ownership. High prior managerial equity LBOs display higher managerial stock ownership, poorer stock performance, greater use of debt, and higher expenditures on taxes than companies that remain public listed. Low prior managerial equity LBOs display lower managerial stock ownership, less use of debt, and poorer stock performance when compared to these same firms. Moreover the poorer the prior performance of the LBO the higher the premiums paid to take it private. This conclusion opposes the cash flow thought and the authors say more research ought to be carried out. They end the paper by saying that it is indeed necessary to recognise that one can derive at very different empirical results from sample to sample depending on the type of LBOs within the analysis.
Lee (1992) reviews the concern of available information to managers, giving them a competitive (insider information) advantage to the outside shareholders. Managers object to the idea that they possess a competitive advantage but agree to the fact that internal knowledge is crucial when entering/exiting the target. Lee bases his research on 188 withdrawn management buyout proposals identified between 1973-89. He proves a positive and significant cumulative abnormal return existed for periods that include both the proposal and withdrawal announcements for the sample. However he cannot reject his null hypothesis that the average stock price increases associated with management buyout proposals only reflects the heightened expectations of the efficiency gains, which follow transfers of control. (ibid. p.1078). The results provide no basis to justify that management do use inside information negatively. It is nonetheless plausible that inside information might influence managers' decisions to propose a buyout. At the same time MBOs rank among the most intensely regulated transactions in financial markets (ibid. p.1062).
Degeorge and Zeukhuaser (1993) use the findings of Myers and Majluf (1984) who construct a scenario where managers know more than the market does about the future prospects of the firm. Assuming that managers act in the interest of the existing shareholders, they have an incentive to issue stock when the market overvalues the firm (when the managers' private information is unfavourable). However, the market is not fooled. The fact that the firm issues stock immediately reveals information about its true state to the market. Degeorge and Zuekauser reviews 62 reverse LBOs between 1983-87 and conclude that LBO targets that want to go public again will have difficulty giving the market credible information about their future prospects. Even a firm with genuinely good prospects typically cannot convey concrete evidence as to its future, and firms with mediocre prospects can make claims that cannot be decisively refuted (p.1325).
Wiersema and Liebeskind (1995) have proved in previous research that large LBO firms undertook significantly more strategic restructuring post buyout than matched public firms (ibid. p.449). They question whether Kaplan (1989) and Smith's (1990) findings of LBO firms reducing sales growth and employment growth could be wrongly influenced by the macroeconomic conditions of the 1980s. Wiersema and Liebeskind approach the question of corporate growth and diversification from a Porterian perspective [6] stating that "A firm's value is based on its ability to sustain a competitive advantage relative to its rivals either by producing at lower cost, or by creating more valuable (differentiated) products" (ibid. p.449). Porter (1985) wrote that the danger when applying "best practice" in a given organization, is that within time, the competitive edge will be copied, and therefore not serve as competitive any longer. Best practices will therefore make us get stuck in the middle. Wiersema and Liebeskind found evidence in their research of 1,000 manufacturing companies that went through an LBO, that the target firm was reduced in size on core and none-core assets. The LBO firms then divested a significantly higher volume of these core and none-core assets than non-LBO firms. This is consistent with the thought that LBO firms provide managers with incentives to downsize and prune businesses, resulting in overall reduction of firm size and diversification. Nayyar (1992) came to the same conclusion that many businesses classified as 'related' do not yield synergies. Consequently, divesting non-synergistic core businesses may also increase firm value.
Andrews and Dowling (1998) analyzed a sample of 41 privatised firms from six industry classifications and 15 countries. To accommodate comparisons of small subsamples, non-parametric statistical methods were used. The research shows that a strong association exists between superior performance improvements and the construct of leadership restructuring (offering management stock options and changing the CEO).
Financial restructuring is also related to superior performance improvement, but the nature of the restructuring varies depending on whether the state maintains a strong shareholder influence. Operational restructuring surprisingly was not associated with improved performance. While agency theory seems to explain most of these findings, additional research is needed for a further understanding of this complex topic.
Butler (2001) draws on the accusation that most LBOs rip companies for a quick return, but research nevertheless shows that a persistent focus on performance and a long-term focus is in play. High attention to improve cash flows to service the debt is crucial. The financial sponsor is furthermore freed from the constraints of the corporate centre - no emotional strings attached. Focus is on growth otherwise a later IPO would not be doable. Less than 1/3 of the sample companies (1,000 chemical companies) exited within 5 years.
Contardo and Angwin (2002) reviews human capital and states - based on qualitative interviews - that most MBOs fail because expected performance improvements do not materialize. Soft issues like trust is crucial in navigating the MBO phase, which denotes the psychological interplay between human beings.
The available evidence - as the above scientific literature review illustrates - to the effects and reasons behind leveraged buy-outs show a trend towards value creation. However certain limitations and inconclusiveness did appear in many of the samples and tests that were conducted. Do managers for instance possess inside information that gives them an advantage over outside shareholders? Certain flaws were also admitted. It is therefore plausible that managers propose a buyout when their firm's assets are undervalued.
As the reader will also notice, all sources are based on Anglo/American empirical tests. Scientific knowledge from a Danish perspective is very limited, and almost non-existent. The Danish author Robert Splid (2007) has tried to pin down some of the constrains, rumours etc. that are attached to the Private Equity industry, but no value creating analysis is performed as to investigate whether there is statistical substantial evidence to conclude that target companies (in a Danish context) perform better after a buy-out.
1.2 Problem Identification
The purpose of this dissertation is to investigate the effect of private equity ownership to spot, whether they create or destroy value. The main objective is therefore to test the following:
Null Hypothesis: Danish PE funds do NOT add value
Alternative Hypothesis: Danish PE funds DO add value
Before being able to test the hypothesis, it is essential to firstly ask:
What is Private Equity?
Secondly I will touch upon a performance analysis of PE funds. This is due to the fact that their performance is a good indicator of the value they add. A higher and better performance than other asset segments could possibly justify the methods that the PE funds are using, when developing their targets. The dissertation will be conducted in two main paragraphs: performance and value creation. The problem identification within these areas will be clarified below.
1.2.1 The Performance
From the perspective of the investor, the performance of PE funds is key in order to determine, whether it is beneficial to invest or not. The performance will be measured by incorporating the return on the companies and the risk of the investments, which facilitates a comparison to different asset segments.
The increase of capital to PE funds indicates higher performance. Within the industry PE firms often target a 20% return on invested capital, which is high. In order to determine whether the performance is valid or not, a historic analysis will be conducted to clarify the following problem area:
How do PE firms perform that invest in Danish and foreign companies respectively, in comparison with listed companies?
1.2.2 The Value Creation
When PE firms make investments, thorough due diligence is initiated in order to identify where value enhancements and improvements can be implemented. So far it is unclear whether they possess different tools, knowledge or options that are superior to those of the current management of these companies.
Therefore I intend to analyze the factors that can affect the value creation in relation to an acquisition. The focus will be primarily on the owners, and will map out whether the traditional owners could have the options to execute similar initiatives.
How do Private Equity firms add value in the companies, which they acquire?
Which factors are important in order to create value?
Which operating and financial restructurings have occurred in Danish companies, taken over by PE firms?
To what extent do these restructurings affect the performance of the company?
To what extent could this value have been achieved with the previous owners?
1.3 Methodology
The Private Equity industry in Denmark will be briefly analyzed, in order to give the reader the necessary understanding of how they are constructed and financed, and illustrate, which conditions are of particular importance for the PE firms' activity in Denmark. This will be based on scientific articles and empirical examinations.
The main objective with this thesis is to test the effects of PE ownership in Denmark. This will also serve to establish a benchmark, from which traditional owners could/should learn about the PE funds' way of developing the companies in question.
In Denmark PE funds are a relatively new phenomenon, which limits the amount of public data on past transactions, ownership changes etc. Furthermore the parties involved in the transactions seldom publish transaction values, which complicate a performance analysis, since estimates will have to be used.
The second issue of complication relates to the life-time of the funds. Most funds have a life-time of approximately 10 years. Their actual performance can therefore only be measured when all companies within the fund have been sold or written-off. The amounts of analytical constraints entail that the used methods can alter the outcome, and thereby skew the results. I will justify each method in the performance paragraph.
International examinations and tests will be incorporated to the extent where the Danish literature is thought to be insufficient. However the conditions between foreign and Danish private equity firms are considered to be comparable. Based upon this assumption many of the value creating elements within the PE industry of the US/UK are assumed to be similar in Denmark.
Furthermore the value creating factors will be supplemented by an empirical quantitative analysis, based on 10 years of financial data from 10 Danish PE funded transactions from 1997-2001 [7] . Since data derives from the companies' respective annual reports, they are assumed to be correct. All entries have manually been translated into English. However in order to keep the accuracy and comparability intact, all figures will be based in Danish Kroner (DKK). Where necessary a conversion to Euros will be used. The financial statements will form the basis to evaluate the operating- and financial restructurings related to the Danish acquisitions. I intend to calculate key ratios that are significantly affected after the takeover of the company by the PE firms. When statistically significant, the tested parameter it considered to go beyond ordinary doubt. For this reason a 5% level of significance will be used [8] . The test will be described later in the dissertation.
The theoretical and qualitative empirical tests will ultimately form the discussion between current ownership versus PE ownership and the difference in adding value.
1.4 Source Criticism
The empirical analyses of Danish and international transactions, and a general description of Danish takeovers, are the main substance and main source of this dissertation. Referencing this material requires a critical approach, which I will try to execute.
Certain articles and tests have been taken from EVCA and DVCA [9] , which quite often are written by the organizations' own members. Not all European firms are part of EVCA, which will also affect the results. Lastly it is questionable whether tests from various PE funds are to be considered 100% reliable, since they might have a tendency of favouring one set of opinions over others. They might as well try to seem responsible, in order to avoid further criticism from the general public or from a political side.
Unfortunately PE firms are not required to submit the same amount of information as listed companies. This is largely affecting the amount of available data, for scientists, investors, political decision makers and the undersigned. Throughout the dissertation I will comment on the reliability of the sources used, in order to give a fair an un-biased picture to the reader.
In order to conduct the empirical analysis of the 10 acquired companies, a combination of the companies' own financial statements will be used together with data from Bloomberg Terminals and Orbis - Bureau van Dijk [10]
1.5 Purpose and Target Audience
The main purpose with the dissertation is primarily to satisfy a growing public wish to know more about the industry and the activities within these funds. Secondly Axcel, a Danish mid-sized Private Equity firm, has showed particular interest in the problem areas raised, and we have a non-comitial agreement that they will support me with data from past transactions. In addition I wish to contribute to a debate that is becoming more and more essential around the world, and also within the borders of Denmark. The importance of PE funds in financial markets is growing. Understanding what they do, and how they do it, is very intriguing, and also the foundation of this dissertation.
Since many of these private equity funds have a very closed structure, with little or almost no external communication, the debate can fairly easily become prejudiced. This is largely fuelled by history, where the PE firms had a tendency of addressing solely the shareholders and not consider other stakeholders. Using existing data, analyses, articles, plus my empirical analysis, I will try if possible to demystify what the press has a tendency of communicating: reckless money power, abnormal returns, unhealthy highly leveraged capital structures and profit above people.
The dissertation is targeting people with a relation to or an interest in private equity transactions. Company owners that wish to sell to a private equity firm, and in parallel wish to get a better insight into the mechanisms that they use. Additionally the target audience is expected to have prior knowledge of financial theory and accounting, which is why basic theory will not be explained in depth.
1.6 Limitation
The main focus of this dissertation is to narrow in on Danish funded transactions. That being said, I will conduct my research by using certain international analyses. This is above all due to the fact that international analyses and empirical tests are based on a larger set of data, making the results more detailed and applicable. Even though I am assuming strong similarities between Danish and UK/US standards certain legal frameworks could easily differ. These possible differences will not be assessed, since they are outside the scope of this dissertation.
Taxation polices will be incorporated on a theoretical level. However technical tax conditions will not be considered, since this will be highly complex to cover in the scope of this dissertation. Taxes will be looked at from a basic point of view.
The discussion of value creation will be conducted from the perspective of the owners, where the main focus is to create more company value (Enterprise value). I am limiting the report by not looking at the value creation that happens for the company's other stakeholders (employees, society, government etc.) This is mainly caused by the fact that they tend to apply other measures of success, which could differ from shareholder value (economic theory).
Acquisitions can be affected by asymmetric information between owners and management. The management team could possibly act on behalf of their own interest, as opposed to the owners [11] . These relations are very difficult to prove, and no literature that I have come across from a Danish perspective justifies including this condition in the dissertation. I therefore assume that all parties are acting in the best interest of the companies and shareholders in all mentioned transactions.
1.7 Section Structure
The figure below is shown to give the reader a graphical illustration of the central sections of the dissertation.
Introduction
Problem Identification
Methodology
Source Criticism
Purpose and Target Audience
Limitation
The Private Equity Industry in Denmark
Value Creation in Acquired Targets
Empirical analysis (own production) of restructurings
Value Creating Factors
Summary
Conclusion
Introduction
Required background information on the PE stakeholders
International Performance analyses used to understand the relation between risk / return
Investigation of value creation
Existing empirical analyses plus own produced analyses based on 10 companies.
Concluding Remark
I
II
III
IV
V
CHAPTERS:
Private Equity - Performance Analysis
International and Danish analyses from well recognized authors are presented and discussed
Summary
Figure 1: Structure
CHAPTER 2: The Danish Private Equity Industry
In this part of the dissertation I will clarify what is meant by private equity, and try to account for the various stakeholders, while introducing the Danish private equity industry.
2.1 What is Private Equity?
Private equity investments are characterised by being leveraged investments in both unquoted and quoted companies. Private equity investments represent a medium term type of equity investment, which is made available through a management company, which advises a private equity investment firm regarding its investments of private equity.
In Denmark the private equity firms are normally limited partnerships, whereby the investors' risk will be limited to the injected capital. The investors are typically institutional investors like pension funds, banks, insurance companies, industrial investors and high net worth private individuals. The capital is used to acquire companies, which subsequently will be developed, typically over a 3-7 year period, where after the companies are divested and the investors will get back their investment, hopefully with a profit.
From a European perspective the private equity industry began in the mid 1930s, where the main goal back then was to satisfy increasing demands for long-term risk capital. (Bance 2004 p.3). The term however didn't get popular until end of the 1980s, since then numerous leveraged private equity investments have taken place.
A certain type of private equity investments is named venture capital. The difference between typical private equity and venture capital is that private equity is normally invested in mature companies, whereas venture capital is invested in companies in the developing- and growth stage. This evidently brings about a higher degree of risk for the venture capital invested. The reason is that the company, into which venture capital is invested, does not have the same possibility to demonstrate sustainable growth and profits that the mature companies can do. Throughout this dissertation I will only look at private equity invested in mature/established companies.
Today the industry is highly globalized, and private equity funds and venture capital funds invest in the area of $90bn (2009). This is obviously a major decline from 2008, where $181bn was invested. The reason being the impact of the financial crisis. A regional breakdown of the activity indicates that North America accounts for 36% of the $90bn, Europe for 37% (Private Equity 2010 Publication TheCityUK, August 2010)
Private equity firms are mostly involved in buy-out financing. The most common way is a leveraged buy-out (LBO) transaction, where the acquisition will be completed by gearing the equity investment with interest bearing loan financing, using the existing assets of the target as collateral to fund the acquisition of the company. Private equity firms will also engage in other types of buy-outs like Management Buy-Outs (MBOs) or Management Buy-Ins (MBIs) (Gaughan 2007, p.297).The purpose of these are to finance the existing or an external management team's purchase of the company - or of specific strategic business units. Seldom will the management team have sufficient capital to complete the entire acquisition without the help of a private equity firm.
In the case of acquiring a listed company, the private equity firms will often delist the company in connection with the acquisition. The reason being that the private equity firm wants to be able to carry out planned strategic and operational changes in the company without press coverage, which is normally part of the life of a listed company. In Appendix 1A a more detailed explanation regarding the various investment phases can be found.
2.1.1 The Investment Process
Private equity firm typically keep their investments for 3-7 years, with the intention of actively influencing the development of the company during their time of ownership. This is contrary to a traditional stock investment (listed company), which often has the characteristics of a passive investment.
One of the reasons for making a private equity investment is typically that the management company, advising the private equity fund, has developed an alternative strategy for the target (the company they want to acquire), which they believe can generate more profits than the strategy currently being executed by the company´s management. The private equity firm will often try to implement a new strategy, which they believe can optimize the overall growth prospects and give path for an attractive but also more risky return on the invested capital.
Figure 2: The PE Investment Process
Source: Own production
Figure 2 illustrates the normal procedure for a given private equity acquisition. When a specific candidate has been identified by the management company advising the private equity fund, the management company will make contact to the owners of the company.
If the owners of the target agree to the principle of entering a sales process for the company, a letter of intent will typically be negotiated. When this is agreed, the management team of the management company will typically be allowed to carry through a due diligence process analysing the target. This tends to take place in physical or virtual data-rooms, where all key commercial, financial, legal and other relevant information about the company is made available on a confidential basis. Representatives from the management company and its commercial, financial and legal advisors will hereby get access to vital information about the company. The purpose of this is for the buying party to analyse and understand what the future prospects of the company are and to justify the price and conditions preliminarily offered. If both parties continue to agree after finalizing the due diligence process, a sale- and purchase agreement will be signed subject to certain conditions (like the buyer´s ability to finance the acquisition). When all conditions are fulfilled, the transaction will be closed. The total process from the first contact till final closing of the transaction will typically take around 3-6 months.
When the private equity fund has taken over the company, an action plan will be organised, with the purpose of developing the company to a specific state. In chapter 4, part 4.2 I will assess how Danish companies are being developed, when owned by private equity firms. When the company meets the milestones set by the new owners (3-7 years later), the company is either sold to a new strategic owner, listed on the stock exchange or sold to a secondary private equity fund (often to another private equity firm) that could be interested in doing an LBO of the firm once more in order to take the company to a new level of development for instance involving global expansion.
2.2 Stakeholders
Figure 3 below is a graphical representation of the essential stakeholders with regard to the industry. [12] In this section they will individually be reviewed to give the needed knowledge to answer the questions raised earlier in the dissertation.
Figure 3: Key Stakeholders
Management Company
Private Equity Fund
Investors
Target Company
Capital
Profit
Profit
Investment
Management Board of Reps.
fee
Capital Profit
Buyers (exit-options)
