M&A and Private Equity: the influence of PE in Merger and Acquisitions

We explore the pivotal role of Private Equity in M&A deals, highlighting its influence, dynamics, and impact on the global transaction landscape.
M&A Private Equity
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Mergers and acquisitions are a key part of corporate evolution, and within this Private Equity (PE) has emerged as a big player, significantly shaping M&A deal structuring. A recent Harvard study underscored PE’s prominence, revealing its involvement in over one-third of all transactions.

This article explores the symbiotic relationship between M&A and PE, and how PE’s strategic expertise and approach can differ to that of corporate development teams’.

M&A Explained

What are Mergers & Acquisitions?

According to Wikipedia, “Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, business organizations, or their operating units are transferred to or consolidated with another company or business organization.”

In other words, M&A transactions are the processes undertaken when companies decide to join forces and become one single company.

Types of M&A Transactions

These transactions can happen in three main ways:

Merger: In a merger, Company A and Company B agree to come together and form a new, combined company, let’s call it Company AB.

Acquisition: In an acquisition, one company, let’s say Company A, buys and takes control of the other company, Company B. Company B becomes a part of Company A.

Bolt-on Acquisition: Company A acquires a much smaller business that is able to add value to Company A as seamlessly as possible by augmenting their current product and main market offering.

In all cases, the goal is to make the business(es) stronger and more competitive by combining their resources, expertise, and customer bases. This could mean sharing technology, employees, products, and customers, which can lead to better growth and success in the market.

Main benefits of M&A Transactions

Mergers and acquisitions (M&A) transactions offer a range of compelling advantages that can transform businesses and enhance their competitiveness:

  • Cost savings, through optimisation and consolidation
  • Diversification of: revenue, products and services, geographies
  • Access to new technology
  • Access to new talent and skills
  • Opportunities for better financial management and maximizing tax benefits
  • Possibility of rapid expansion into new markets and established customer bases

In essence, the benefits of pursuing M&A transactions present various opportunities for businesses to evolve, innovate, and achieve greater success in dynamic market landscapes. To make the most of these potential opportunities most businesses engage the services of an M&A Advisor experienced in these types of transactions.

Private Equity Explained

What is Private Equity?

Private Equity funds are a special type of investment fund. They gather money from various investors and pool resources. This money is used to invest in private companies that are not listed on the stock exchange, which means they’re not available for the public to buy or sell shares in. These private equity investors then work to add value to these companies.

Wikipedia explains Private Equity (PE) as “an investment fund, usually a limited partnership, which invests in and restructures private companies. A private-equity fund is both a type of ownership of assets (financial equity) and is a class of assets (debt securities and equity securities), which function as modes of financial management for operating private companies that are not publicly traded in a stock exchange.”

How do Private Equity Funds work?

A Private Equity Fund has a pool of funds gathered from various investors. This collective capital is directed towards acquiring private companies, those not publicly traded on the stock exchange. Once ownership is established, PE investors make interventions to improve the company, sometimes specifically targeted distressed companies, akin to renovating a property to boost its value. Private equity consultants are often sought out to help identify potential investment opportunities. As these privately held businesses become more successful and valuable, the private equity fund, along with its contributing investors, can make a return on their investments either by selling the companies or sharing in their increased profits.

The differences between Private Equity Buyouts and Corporate M&A Deals

While each Private Equity buyout and corporate merger and acquisition transaction is unique, there are discernible trends that differentiate these two deal types:

Business Model

Private equity firms function as professional investors aiming to enhance the value of acquired firms for a profitable exit. They focus on securing returns and value addition. In contrast, corporate M&A endeavors often aim to integrate new products or expand market reach, aligning with the existing business’s objectives and strategies.

Pre-deal Strategy

Private equity deal sourcing is typically highly focused, seeking alignment with existing portfolio companies. This rigorous approach allows for efficient synergies and specialization. Corporate M&A strategies, though varied, can be less structured in terms of target selection and alignment.

Enhancing Governance over Full Integration

Private equity buyers emphasize strong governance, nurturing relationships between boards, management teams, PE partners, and investors. This approach aligns with a “bolt-on” acquisition strategy, focusing on strategic fit and collaboration rather than complete integration.


Private equity deals operate with shorter time horizons, driven by the goal of realizing returns within a defined period. This contrasts with corporate M&A, which might prioritize longer-term integration strategies.

The role and influence of Private Equity Firms in M&A Transactions

PE firms bring added value to M&A transactions in a number of areas:

Capital Infusion:

Role: PE firms provide substantial funding to support growth and expansion in M&A transactions.

PE’s Advantage: Their dedicated focus on specific investments allows them to allocate resources effectively for maximum impact.

Expertise and Strategy:

Role: PE professionals offer industry-specific knowledge to enhance the potential of the acquired company.

PE’s Advantage: Specializing in particular sectors, PE firms possess deep insights into market dynamics, enabling them to make informed strategic decisions.

Operational Improvement:

Role: PE investors optimize operational efficiency by identifying areas for enhancement and implementing best practices.

PE’s Advantage: Their operational agility and hands-on approach facilitate swift decision-making and effective execution of changes.

Management Support:

Role: Experienced PE executives guide the target company’s management team, contributing valuable leadership.

PE’s Advantage: Their external perspective allows them to provide fresh insights and objective guidance for improved management practices.

Expansion and Growth:

Role: PE firms leverage networks and resources to expand the target company’s market presence.

PE’s Advantage: Their strategic connections and industry contacts provide opportunities for rapid market expansion.

Financial Management:

Role: PE experts optimize financial structures, working capital management, and profitability strategies.

PE’s Advantage: Their extensive financial expertise allows for efficient resource allocation and maximization of financial performance.

Acquisition Strategy:

Role: PE firms create synergies among portfolio companies through strategic acquisitions.

PE’s Advantage: Their expertise in identifying complementary businesses leads to a targeted and cohesive portfolio strategy.

Exit Planning:

Role: PE firms plan for successful exits to realize substantial returns.

PE’s Advantage: Their experience in timed exits drives a focused approach and the implementation of strategies to enhance company value.

Cultural Alignment:

Role: PE firms ensure alignment of cultures between acquiring and acquired companies.

PE’s Advantage: Their ability to manage cultural integration and collaboration fosters smooth transitions and efficient cooperation.

Private Equity and M&A Deal Structuring

Deal structuring in private equity, akin to corporate M&A, involves meticulous pre-deal sourcing, adaptive due diligence, and robust investment proposals given to stakeholders.

Deal structuring is the strategic arrangement and organization of terms, financial arrangements, and conditions surrounding the transaction. It encompasses a series of M&A processes aimed at optimizing the alignment of interests and achieving desired outcomes for all parties involved.

Rigorous Pre-Deal Sourcing:

PE’s involvement in M&A starts with rigorous pre-deal sourcing. PE firms meticulously identify and evaluate potential targets that align with their investment strategy. This sourcing involves comprehensive market analysis, identifying growth opportunities, and pinpointing synergies within the PE fund’s portfolio.

Iterative Due Diligence Process:

The due diligence phase(s) in PE’s deal structuring emphasizes a dynamic and iterative approach. Depending on the stage of the deal and the extent of information shared by the target, due diligence is an ongoing process. PE firms delve deep into financials, operations, legal matters, and market dynamics. This iterative nature allows PE investors to adapt their strategies based on new insights, ensuring informed decisions and risk mitigation.

Investment Proposal and Committee Approval:

The process of investment proposal and committee approval is a critical stage in PE deals. Investment proposals are meticulously crafted, highlighting the strategic rationale, expected synergies, growth plans, and return on investment. These proposals evolve into comprehensive Investment Memoranda, presenting a compelling case to the PE firm’s investment committee for going ahead with the deal.


Despite a recent lull in global M&A deal volume, the potential of private equity remains substantial. Bain & Company’s estimation of $3.7 trillion in dry powder – uninvested capital – underscores the industry’s capability for substantial impact when unleashed. PE firms’ previously tarnished image, with many businesses wary of working with PE altogether, is being improved by some, and they look set to continue to drive innovation and create value for investors.

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