PROFESSIONAL PLAYER IN THE MID MARKET PRIVATE EQUITY INDUSTRY
There are many entrepreneurs in Europe and elsewhere aiming to make their companies champions of their industries, both national and globally. To succeed, these entrepreneurs need the backing of a committed investor who can provide vital resources and support.
We, at LFG Global Alpha Equity, are motivated by realising the potential of these companies, developing and advising them .
Our many years of experience and sector specialisation represent the key strengths that make us the right choice. They enable us to identify the most promising companies in our specialist sectors, understand their growth drivers and support their management as they work to achieve their ambitions.
Our strong values and ethics also set us apart. We pride ourselves on being a professional, respectful, exacting and bold partner.
By selecting LFG Global Alpha Equity, entrepreneurs and investors are choosing a committed, supportive and stimulating private equity market player who will share their vision, their strategy and their long-term development.
Our success is built on the close, trust-based relationships that our teams have with our entrepreneurs and investors alike, and on our desire to succeed as a team.
LFG Global Alpha is an established, leading private equity firm with offices in Zurich and London. We assist entrepreneurs who have ambitious growth plans for their business.
The term 'private equity' refers to a specific type of mid- to long-term investment opportunities. It involves the provision of investment from investors (or limited partners, 'LPs') to finance and acquire equity ownership in private companies that are usually not quoted on a regulated market. The large majority of investors include public and private pension funds, endowments, foundations and / or high net worth individuals.
A private equity firm (known as general partners, or GPs) draw on the combined raised capital and borrowed funds, committed for a period of time (the investment period), and seek to invest this in companies which demonstrate the potential for growth in value and enhance their performance and value over a prolonged period. Typically, holding periods last between three and seven years.
TYPES OF INVESTMENTS
Private equity transactions take many forms. Typical forms of private equity include venture capital, growth and mezzanine capital. LFG engages primarily in the mid to large buy-out sector of the private equity market, in cooperation with strategic capital partners and with a focus on building and expanding businesses over the long-term, for the most part, holding investments for at least five years.
In contrast to the majority of institutional investors, private equity fund managers engage much more actively in the operations and strategic development of their portfolio companies and put considerable management efforts into supporting them.
LFG’s Venture Capital division partners with entrepreneurs to build innovative, high-growth companies within the Technology & Services and other sectors. Our experienced Venture team has invested in more than 50 companies and leverages its deep sector expertise, investment experience and extensive relationship networks to help build our portfolio companies into world-class organisations. Although we prefer to serve as a lead investor, we have strong relationships with other top-tier venture funds and will co-invest in select opportunities.
HYBRID FUNDS: The Convergence of Hedge Funds and Private Equity
There has been in recent years a marked convergence of the traditionally separate asset classes of "hedge funds" and "private equity", a trend that recently has dramatically accelerated as hedge fund managers have sought to manage liquidity by side pocketing illiquid or difficult-to-value assets, often in return for restructured upside fees that are paid only on realisation of the underlying assets. Indeed, a significant number of funds that started life as hedge funds are beginning to resemble private equity funds. Illiquidity in the equity markets and the rising chorus of criticism of the hedge fund model (particularly with regard to returns and manager remuneration), combined with increased cost of stock borrowing and higher margin requirements at brokerage houses, together with increases in middle- and back-office overheads, are woes compounded by the legal risks and general hassle associated with running existing funds that will not meet their high watermarks for significant periods of time to come. Faced with these troubles, some hedge fund managers are seeking either to diversify their existing fund portfolios into more illiquid, private equity-style investments, or to launch new funds pursuing investment opportunities in illiquid or distressed assets. And it is no secret that private equity returns have recently outperformed those afforded by hedge funds.
ESG and Sustainability: Investing Responsibly
LFG is increasingly aware of the impact that the private equity industry can have on society and the environment. The sector reaches a large number of people across many countries and involves the use of a significant amount of the earth's natural resources. LFG therefore believes that environmental, social and governance (ESG) issues should be integral to the investment process and is in the process of enhancing and formalising its approach to these issues in its own investment programme.
We understand that the effective ownership and management of a company creates benefits for all stakeholders: from employees to customers, suppliers to shareholders, and the wider community at large. Therefore, LFG is committed to helping its investment funds make responsible investments in order to create sustainable, long-term value in close partnership with management teams.
LFG takes into account the ten principles of corporate governance enshrined in the UN Global Compact and is in the process of putting comprehensive mechanisms in place to incorporate ESG issues into investment analysis and decision-making processes.
We are aware that there is significant opportunity to influence corporate behaviour to achieve improved ESG/sustainability performance through the ownership of its portfolio companies. LFG believes that best practice on ESG issues both mitigates risk and captures opportunities that enhances the long-term value of the portfolio companies.
EXIT ROUTES IN PRIVATE EQUITY TRANSACTIONS
It is the ultimate objective of all private equity investors to realize the return on their investment after a certain amount of time, typically between three to seven years after the original transaction took place. Performing an exit is the process by which private equity firms achieve such goal, which is therefore a natural part of the life-cycle of every private equity transaction. Also, the number of successful exits achieved by a certain private equity house has a strong influence on its ability to attract investors and raise funds. Accordingly, the potential exit opportunities from an investment play a highly important role in an investor’s decision about whether or not to invest in a company. This is the reason why exits receive such special attention from the earliest stages of the deal.
Generally speaking, several methods are available to private equity investors to exit their investment. The most important and widely used exits routes are to be shortly analyzed below.
Initial Public Offering
Initial public offering (“IPO”) or as sometimes referred to „flotation” or „listing” is the method whereby the company’s shares get listed on the stock market for the first time, so the investor will be able to sell its shares to the public. This is one of the most popular exit strategies used by private equity providers, due to the fact that when the proper market conditions are available, this method is likely to enable the investor to realize the highest return on its investment.
Notwithstanding the higher outcome that can be obtained, IPOs also have serious disadvantages compared to other exit methods that need to be taken into consideration. First of all, the public offering of shares in itself does not mean an exit. The private equity provider will only be able to exit its investment when its shares are actually sold on the stock market, which is very unlikely to happen simultaneously with the IPO. Therefore, the investor seeking to perform an exit will be exposed to fluctuations and other market risks for a certain amount of time after the IPO is carried out. Also, the listing of the shares of a company is typically subject to strict regulatory requirements and restrictions, which make the IPO a lengthy and expensive process.
Another commonly used exit route is the trade sale in which the private equity investor sells all of its shares held in a company to a trade buyer, i.e. a third party often operating in the same industry as the company itself. This method is preferred by private equity providers mainly because it provides a complete and immediate exit from the investment. Another advantage of the trade sale is that in this case, the negotiations take place with a single buyer which allows for a quicker and more efficient process which is not subject to the regulatory restrictions applicable to IPO transactions. In a trade sale transaction, the investor can also exercise more control over the whole process, and in certain cases might even end up obtaining a higher value for the company compared to other exit methods. On the other hand, trade sale is not free from potential problems and risks either. The management of the company may be resistant such a transaction as the change of control often results in the replacement of the company’s management as well. A trade sale might also entail serious business risks as the buyer is oftentimes a competitor of the company, which will inevitably obtain confidential business information during the negotiation process.
In the case of a secondary buyout, the company is sold by a private equity investor to another private equity firm. In other words, the particular nature of a secondary buyout lies in that private equity houses appear on both sides of the deal, while in the average transaction private equity investors would only be involved either as seller or purchaser. There are a number of possible reasons why an investor may choose this method as the exit route. It can be a means of shortening the life-time of a transaction which has become a priority for private equity houses in the recent economic climate, and therefore secondary buyouts have become increasingly popular. Sometimes, the investor which carried out the original acquisition is not willing to (or cannot) finance a business anymore, even though the company might not yet be ready for a trade sale or IPO. In that case, selling the company to another private equity firm which sees potential in further developing the company might be a reasonable solution. This method can also be used by the management when they wish to replace the private equity investor backing the company. A secondary buyout offers the advantages of an immediate and complete exit and it can be carried out even faster than a trade sale or an IPO. This plays a significant role in its increasing popularity.
Leveraged recapitalization is a partial exit method, whereby the private equity investor is able to extract cash from a business without actually selling the company. This is achieved by re-leveraging the company i.e. substituting some of the company’s equity with additional debt. It is usually done by the company raising money by borrowing from a bank or issuing bonds, which amount is then used to repurchase the company’s own shares from the investor. The most important advantages generally associated with leveraged recapitalizations are that investors can remain in control whilst still receiving payment and the possible tax benefits compared to other types of exits. On the other hand there are significant disadvantages to this method too. A leveraged recapitalization may result in over-leverage that can eventually lead to financial difficulties and even bankruptcy. Also, increased leverage limits the flexibility of the company’s operations.