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 |
