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Strategic Private Equity

Reviewed by John CarvalhoCheckmark

What Does Strategic Private Equity Mean?

Strategic private equity refers to an organization's decision-making process to buy a platform company. The idea behind this decision is to use the platform company as a base on which to buy and build more companies in the future.

Today's competitive world has made platform companies powerful because it gives other businesses an opportunity to connect with them in a mutually rewarding way. As the name implies, platform companies provide the foundation needed to expand and grow, which is why there can be so much competition to buy such companies.

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Divestopedia Explains Strategic Private Equity

An example of a platform company can be seen in the mobile device world. In the early 2000s, Nokia and Blackberry were the rulers; within a decade, they had been replaced by Apple and Android. The reason for the success of the latter two companies is because of the platform they offer other businesses - such as application (app) development companies - as a means to grow. This connection is mutually rewarding to both Apple and Android because they have a larger market share, and it is also beneficial to the app development companies as they build a clientele through them.

Strategic private equity is the process of determining the right company that aligns with the business as well as the buyer's goals. In general, three factors should be considered while choosing platform companies:

  1. Ease of Connection: It should be easy for other businesses to "plug in" to the platform without spending a lot of resources.
  2. Attractiveness: The platform should attract everyone, including those who produce and those who consume products.
  3. Creation of Value: The platform should generate a flow between companies to co-create value and encourage exchange.

When all of these factors are present in a platform company, then it is a good buy. Since this process of identifying platform companies is an important task, most organizations prefer to leave it in the hands of experienced strategic equity specialists.

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Sale ProcessPrivate EquityStrategic AcquirerExit PlanningBuyer TypesTypes of ConsiderationBusiness Brokers

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