The act of acquiring either tangible or intangible assets. In Private Equity this typically involves taking over a company.
The act of buying a majority stake in a company. Depending on who is doing the buying we can distinguish between a Management- or Employee-buyout. When the buyer uses a financial leverage through buying a company’s debt, it is called a Leveraged Buy-Out.
Angel investment vs. Venture investment vs. Late Stage Venture
Modern technological progress allows for new products and services to be born in small companies with very rapid subsequent growth. A typical sequence of financing such development is as follows: After the founders invest into the project an Angel Investor joins and acts as an intermediate step in preparing for the entrance of Venture Capital. This could be an individual, but in order to reap the benefits of diversification, this is most often done by Venture Funds. Venture Investors therefore invest in small companies with a good product and a good business plan. They help to either develop the product further and/or bring it to the market. Should a developed company have its own product already on the market, but still be missing important business elements (e.g. a solid managerial structure) or the resources needed for further product development or company expansion, then they may be attractive to Late Stage Venture Investments. Private Equity funds play an important role in those.
Venture Investment vs. Private Equity
Venture Investments specialise in companies who are in the early stages of development. Private Equity invests into mature companies (or companies in later stages of development) which are not publicly traded on the stock market. What both types of investments have in common is the goal to create profit, either through further development of the company or by its subsequent sale.
These are mature companies which have already established themselves on the market but still need to finance their expansion to new markets or their acquisition of other assets. This is another perfect scenario for involving Private Equity investors.
Before investors into a target company, they perform a complete “Due Dilligence” evalutation, including a thorough financial, technical,l and managerial audit.
An exit strategy is a specific goal for the investor and the outlining of a process if it is not reached. A strategic goal may be to become publically traded or to sell the company to a strategic investor. Should the strategic goal not be reached, an exit strategy may involve closing the company down.
Turn-Around or Rescue
Investment into Distressed Assets (i.e. companies who are experiencing difficulties) involves consolidating the asset and resetting its inner processes so that the company can start generating profits again. If this recovery approach proves unsuccessful, liquidation of the asset may be the most healthy and considerate way of treating the asset.
The basic process of minimising risk. A random negative shock can affect absolutely any company or strategy. By splitting the portfolio among many investments (or investment tools), investors lower the risk of having their investment threatened by the random negative incidents. However, it is important to invest into “uncorrelated” assets which face different sources of potential hazards.
Short for “earnings before interest, taxes, depreciation, and amortisation,” this indicator is useful for accounting.
Short for “earnings before interest, and taxes,” this is another useful accounting indicator which, unlike EBITDA, includes amortisation.
Nominal and Real Yield
Nominal Yield measures the growth in asset value in simple financial terms, e.g. in CZK. Real Yield (and other equivalent real indicators) don’t factor in inflation. Real terms therefore are typically smaller than nominal terms. In years of low inflation (e.g. pre-2016 Czech Republic), this difference is not very impactful. However, the Czech crown is currently losing up to 3% of its value every year, so a three percent nominal yield means that the investor has not really increased his or her purchasing power.
This refers to how easy it is to convert an asset into cash. Liquity can be increased if the investor is willing to sell the asset for a less than it’s worth in order for it to sell more quickly.
A reduction of the asking price of a given asset, usually stated in terms of a percentage. A discount is different than a discount rate, however, as the latter takes into consideration the interest rate at which a central bank lends to commercial banks or to the government. Because of this, the discount rate determines the general level of commercial banks’ interest rates on the market, which affects the cost of available financial capital.
This is how any two series of values are related to each other. If two measurements are positively correlated, then the increase of one will indicate a likely increase in the other as well. On the other hand, a negative correlation indicates that if one value increases, that the other will likely decrease. A responsible investor will consider these correlations when building their investment portfolio in order to minimise risk.
A Beta Coefficient measures how volatile the value of an asset is when compared to volatility of the entire market as a whole. A Beta Coefficient greater than 1 means that the given asset’s value is changing even faster than the value of other assets. During economic growth, for example, the value of such companies grows faster than the stock market. When Beta is less than 1, the asset’s value changes less quickly than the value of other assets. The coefficient therefore measures the risk of general movements on the market.