Private equity firms and industrial or trade enterprises are the two primary types of acquirers involved in M&A. However, both maintain different approaches toward ownership based on distinct goals which affect how a transaction may unfold and what may happen after a transaction is completed.
Private equity firms have a different business model
The operating model focuses on making a smart purchase and then increasing the acquisition’s value over an established time frame to realize a financially lucrative exit. While industry buyers seek some long-term, infinite growth from a new enterprise, private equity owners have a shorter plan of business development and transformation.
Private equity firms have a different strategy before and after the deal
Because they are in the primary business of buying and selling, making the correct purchase is a preeminent concern. Thus, private equity firms act with a centralized, disciplined and relationship-oriented approach to making future acquisitions that may begin years before the actual acquisition of a particular business. Paramount to achieving such an approach is the performance of painstaking due diligence.
Once a deal is finalized, in contrast to a focus on organizational integration by an industry trade acquirer, private equity firms focus on governance and ownership of the acquired entity.
Private equity firms have a finite timeline
They have a finite goal when acquiring a new business. Industrial buyers purchase with the goal of ongoing ownership with permanent results through organizational integration. When a private equity investor makes a purchase, it already has an exit goal established within some estimated time frame.