Buyout funds are funds that focus on mergers and acquisitions of target companies. Its investment method is to acquire control over the target enterprise by acquiring the equity of the target enterprise. Then carry out certain restructuring and transformation, hold it for a certain period of time and then sell it.
The characteristics of buyout funds are as follows:
- In terms of fundraising, it is mainly raised from a small number of institutional investors or individuals through non-public means. Its sales and redemption are all conducted by fund managers through private consultations with investors. In addition, the investment method is also carried out in the form of private placement, rarely involving operations in the public market, and generally does not need to disclose transaction details.
- More equity investment is adopted, and debt investment is rarely involved. Therefore, PE investment institutions have certain voting rights over the decision-making management of the invested companies. Reflected in investment vehicles.
- Generally invest in private companies, that is, non-listed companies, rarely invest in publicly issued companies, and will not involve tender offer obligations.
- It is more inclined to form enterprises that have formed a certain scale and generate stable cash flow, which is obviously different from VC.
- The investment period is longer, generally up to 3 to 5 years or longer, which is a medium and long-term investment.
- The liquidity is poor, and there is no ready market for the equity transferor and the buyer of the non-listed company to directly conclude transactions.
- Funds come from a wide range of sources, such as wealthy individuals, venture funds, leveraged buyout funds, strategic investors, pension funds, insurance companies, etc.
- PE investment institutions mostly adopt limited partnership system, which has good investment management efficiency and avoids the drawbacks of double taxation.
- Diversified investment and exit channels, such as IPO, sale (TRADE SALE), merger and acquisition (M&A), target company management buyback, etc.
