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Comparison Between Private Equity and Corporate Mergers and Acquisitions


Private equity (PE) is a part of the asset management industry where investments involve privately held securities and shares (holdings)- i.e., securities that are not listed or traded on exchanges (public markets). In other words, it refers to investments in private companies in privately negotiated transactions. By nature, private equity investments are complex, illiquid and difficult to assess. Furthermore, it is an asset class whose return will be realized over the long run. Therefore, private equity allows investors to finance the development of private companies and benefit from their success long after the investment decision has been made.

Corporate mergers and acquisitions (M&As) are corporate transactions whereby one company merges with, or purchases the assets of, another company. Mergers involve a combination of two companies or more to the extent that the assets and liabilities of the two companies are blended and dealt as a whole. Usually, the buying company survives the transaction and the selling company ceases to exist. Acquisitions involve the purchase of assets such as units, plants, divisions, or entire companies.

The following table enlists the main differences between private equity and corporate mergers and acquisitions:

Private Equity Mergers & acquisitions
Strategy Exit-driven Revenue-driven and market-share-driven
Synergy Not necessarily essential. Between portfolio companies Essential factor. With target companies
Integration No integration Integration is vital
Risk tolerance Low or very low High
Due diligence Very lengthy/rigorous Ordinary/fair
Adding value Very important Integration benefits
Alternatives Many for potential deals Fewer for targets
Stake Minority or majority Majority
Valuation Bargains and discount Market share and synergies
Exit Anytime Deals have to be made
Occurrence Frequent Not as frequent
Time to exit 2-10 years Depends on integration results


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