Private Equity Minority Investments - Universität St.Gallen

Chapter I: Introductioninvestments to perform a statistically significant quantitative study. Publicinformation on portfolio firms, the terms of their deals and their negotiatedgovernance arrangements are often only rudimentary, if made public at all.Thirdly, this study deliberately considers the subjective views andobjectives of the respective decision makers on both sides involved inminority investments as well as the interactions and dynamics among thebusiness partners so as to better understand what factors motivatecooperation and give rise to conflicts between private equity investors andowner families, factors that also determine the legal structure chosen.In following a qualitative research approach, this dissertation draws uponexpert interviews and document analysis as the principal research methods.The author conducted a series of face-to-face, in-depth expert interviewswith fourteen private equity professionals in the fall of 2009. The expertswere selected based on their experiences with minority investments inclosely held companies with a dominant controlling shareholder. Theinterviews typically lasted one hour and were guided by a semi-structuredquestionnaire. Anonymity was guaranteed to all interviewees. Following anintroductory discussion on the interviewees’ general experiences withminority investments, the interviewer probed the interviewees about theirmotives for, experiences with, and resulting personal views of minorityinvestments and the legal structuring thereof. In discussing specificminority investments the experts had been involved in, the intervieweeswere asked to describe the details of the voice and exit-related legalarrangements made, the rationale behind such arrangements, and how theyarrived at these particular arrangements. The interviews served to assist theauthor assess the practical relevance of the legal tools and arrangementspresented in this dissertation based on the experts’ practical experiences.The private equity professionals interviewed also provided insightfulcomments on current developments and expected trends related to privateequity minority investments.To identify the principal voice and exit-related legal tools and arrangementsused in practice, the author analyzed key legal documents (including termsheets, shareholders’ agreements, and articles of association) of eightprivate equity minority investments. The legal documents were provided bythe experts interviewed on a ‘no name’ basis. Compared to the expertinterviews, which were limited by time and can contain bias and ambiguityparticularly concerning the various legal structures, the author’s documentanalysis provided insights as to precisely how certain legal structuresrelevant to minority shareholders were structured in practice. Yet, theselegal documents were tailored to specific investment situations, so drawinggeneral conclusions was not always possible.13