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M&A - Invest in Italy - Step 3



Institutions vs individuals

Buyers of middle and lower middle market companies are institutions (PE firms or strategic buyers). It is rate that its individuals due to the size of the companies and the amount of money needed. An important distribution is an executive backed by a private equity firm, a situation thats really closer to a private equity buyer than an individual buyer. In this case the individual essentially has the financing lined up and is simply seeking the right acquisition.

Private equity

Is a pool of money looking to invest in or to buy companies. For all intents and purposes the firm has no operation other than buying and selling companies, which go into its portfolio.

PE firms make money by charging an annal management fee of 2 percent to 3 percent of the money under management and then taking a cut when the sell the portfolio companies.

A traditional PE firm wants to make an acquisition and perhaps fix up the company by streamlining operation, cutting wasteful spending, increasing sales and maybe making some add-on acquisitions, all over a 3-5 year period.

Family office

The se firms work in a similar fashion to PE firms, except the money usually comes from one or an extremely limited number of Limited partners (LP's). Most often its a extremely wealthy family that set up an office to manage a portion of the family wealth.

The EBITDA

It is the measure of a company's profitability for doing what the company is supposed to do. It effectively removes the profit distorting effects of taxes,interest income and expenses and eliminates the effects of making capital investments in the firm,

Return on equity

Is simply the amount of income divided by the total amount of the company's equity.

Return on investment

Calculated by subtracting the sale price from the acquisition price and dividing that difference by the acquisition price, the result is a percentage.

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