What is the purchase fund?

The purchase fund is a means by which investors can buy capital in a private company that is not listed on the stock exchange. These trades often include both the company's refinancing and the significant structural change. In many cases, the purchase fund will use the lever effect, which means that the main organization for the purchase does not provide all funding. The idea is that the money used to buy will help finance future business activities. This setting differs from risk capital, which is commonly used for relatively new and small companies where current owners need cash but do not want to give up control. Here one company is trying to take over another company, but does not want to pay the entire purchase price. To solve this, the company will set up a private capital fund on itself by a legal entity. Investors are invited to buy shares in the fund and the resulting cash is used to finance the purchase of the target company. Repayment and interest for investors come from future incomeof the company.

There are advantages and disadvantages of this type of purchase fund for investors. The main advantage is that financial return comes faster than other types of investment and is more stable and predictable. The main disadvantage is that the liability of a company directed by receipt is limited. If it is unable to repay investors, they will usually not be able to claim its other assets.

If the company needs financing but does not want to sell out completely, it can offer a mezzanine debt of the fund. This is a type of debt that is particularly low to the company's assets; If the company is liquidated, the intermediate debt Holders will be on the back of the line for the share of the asset, before ordinary shareholders. To compensate for this, the return on debt between mezzanine is much higher than other types of debt products.