What makes private equity1 different?
From start-ups to well-established companies, most businesses in Europe are privately owned, and not listed on public markets.
Private equity investors support these businesses on their growth journey, and it's their combination of patient and active ownership that sets the private equity model apart from most other sources of funding. Combining finance with active management, private equity adds value to the companies in which it invests.
Clear alignment between private equity firms and their investors is also fundamental to how the industry operates. Long-term engagement delivers strong and sustainable growth, resulting in healthy returns for Europe’s pension funds and insurers, benefiting millions of European citizens and their families.
This makes private equity an attractive investment opportunity and sets it apart from other asset classes.
The role of private equity in the economy
Delivering returns for savings and pensions
Most private equity funding comes from citizens' savings. Pension and insurance companies invest in private equity funds because they generates consistent returns over the long-term. This is important while interest rates continue to remain low.
Helping companies to grow
Private equity firms are actively involved in the running of the businesses they invest in, strengthening management, delivering operational improvements and helping them to expand into new markets. This active approach is also used to help underperforming companies survive, protecting jobs and creating successful businesses with a strong future.
Providing patient investment
Private equity funds make a long-term commitment to the companies they back, often investing for many years, and setting companies on a sustainable growth path. This helps businesses to plan for the future with the reassurance that comes from having a committed partner.
Creating value for investors and society
By building better businesses, private equity plays a vital role in Europe’s prosperity – benefiting employees, pensioners, investors and the wider economy. Private equity fund managers also invest their own money, meaning they have a strong interest in the long-term success of the investments they have undertaken.
Investment stages
‘Private equity’ simply means that the portfolio company is owned privately – i.e. its shares are not listed on a public market. As an industry it encompasses all sizes of investor and business, at all stages, from fledgling start-ups through to global corporations. The broad investment stages of private equity are outlined below:
Venture – Seed
This is funding provided before the portfolio company has started mass production/distribution with the aim to complete research, product definition or product design, including market tests and prototypes. This funding is not used for mass production/distribution.
Venture – Start-up
This is funding for companies whose product or service is fully developed and starting mass production or distribution, and to cover initial marketing costs. Companies may be in the process of being set up or may have been in business for a shorter time, but have not sold their product commercially yet. The use of capital would be mostly to cover capital expenditures and initial working capital, and these companies would not usually be generating a profit yet.
Venture – Later stage
Financing provided for an operating company, which may or may not be profitable. Later-stage venture tends to involve financing into companies already backed by VCs, typically in C or D rounds of investment.
Growth
This is private equity investment (often a minority stake) in relatively mature companies that are looking for primary capital to expand and improve operations or enter new markets to accelerate the growth of an already successful business.
Buyout
Financing provided to acquire a company. It may use a significant amount of borrowed capital to meet the cost of acquisition. Typically involves purchasing a majority or controlling stake in the portfolio company.
Turnaround / Rescue
Financing made available to an existing business, which has experienced financial distress, with a view to re-establishing profitable trading.
Replacement Capital
Minority stake purchase from another private equity investment organisation or from another shareholder or shareholders.
Private equity:
Impact in numbers
Over the past few years private equity has become an important source of funding for European businesses
Investing in Europe:
€576 bn
invested by private equity in European companies from 2019–2023
29,433
European companies benefited from PE investment over the 2019–2023 period
Attracting global investment into Europe:
38%
of the total amount raised by private equity in Europe between 2019–2023 came from outside the continent
Note
1. Private equity in this presentation encompasses: Buyout, Generalist, Growth, Mezzanine, and Venture Capital.