The Research Of Synergy Effects Between Private Equity And Target Companies

It has been more than2decades since the first private equity fund cameto China. As SME board started in Shenzhen, China local PE fundsobtained a very good channel for exit.However, it seems the business model of Private Equity funds have tochange from2012. Stock prices in secondary market have keepingweakening for a very long time, which forces CSRC announced to stopIPO and begin to audit all the companies who already submitted thematerials and waiting for IPO. The traditional exit way for PE firms seemsdoes not work. Therefore, PE firms have to consider new ways to exit.In this article, I described the bottleneck of the development of PEindustry in China, explained why PE firms in China have to consider thenew way as a strategic-thinking investor instead of pure financial investor.The key of new way is to thoroughly study the target company and releasesynergy effects after investment. Part1introduced the current situation ofPE industry nowadays. Part2explained why PE firms cannot gainexcessive profits if they act as pure financial investors and have to changeto strategic-thinking investors. Part3focus on the synergy effect which is the key element of strategic-thinking investment and introduced how togain synergy effects after investment from target companies throughverifying the strategy, organization, resource, compliance, finance andhuman resource management. Part4provides two examples, explainedhow to correctly release the synergy effects and the result by analyzing thefinancial reports. Part5is the conclusion, which emphasized the synergyeffects is the key to the development of PE firms in the future and the PEfirms must have a thorough understanding of target companies and need tofind out a unique way to help the company to increase its value.