Private Equity Entities and Conglomerates: What are the Differences?

CEFS Working Paper Series

48 Pages Posted: 5 Jun 2008

See all articles by Ann‐Kristin Achleitner

Ann‐Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies

Kay Mueller

Technische Universität München (TUM) - Center for Entrepreneurial and Financial Studies (CEFS)

Date Written: June 1, 2008

Abstract

We compare the characteristics of conglomerates and private equity entities. This is done by examining the differences among their business models. We analyze the relations of the two entity types to their investors on the one hand and to their investments on the other hand. The distinguishing characteristic of private equity entities is that they pursue a stand-alone-perspective with their investment policies, meaning that they treat each investment separately. Therefore, various linkages that exist in conglomerates do not occur in private equity entities. We describe these linkages in detail. We further argue that because of the lack of these linkages in private equity entities the shareholders and debtholders of a private equity entity and its portfolio companies are not faced with the following risks that are specific for a conglomerate: the asset shifting risk, the intra-group profit risk and the capital structure risk. Finally, we define crucial evaluation criteria for identifying a private equity entity and develop a way how regulators and other persons concerned with such a task could do so.

Keywords: Private equity, conglomerates, investment companies

JEL Classification: G23, G24, G28

Suggested Citation

Achleitner, Ann-Kristin and Mueller, Kay, Private Equity Entities and Conglomerates: What are the Differences? (June 1, 2008). CEFS Working Paper Series. Available at SSRN: https://ssrn.com/abstract=1140699 or http://dx.doi.org/10.2139/ssrn.1140699

Ann-Kristin Achleitner

Technische Universität München - Center for Entrepreneurial and Financial Studies ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25181 (Phone)

Kay Mueller (Contact Author)

Technische Universität München (TUM) - Center for Entrepreneurial and Financial Studies (CEFS) ( email )

Arcisstr. 21
Munich, 80333
Germany

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