Private equity funds play an increasingly important role in buying and selling businesses (M&A). However, they're often lumped into a single category without distinguishing between their different approaches. At Deale, the platform dedicated to buying and selling SMEs, we explain the main differences between the three most common types of private equity funds: buyout, turnaround, and growth equity.
What types of private equity funds are there?
Buyout funds
Buyout funds invest in mature, stable, and profitable companies, aiming to acquire a majority stake — usually full control — to drive their growth or consolidation. They look for businesses that perform well and have the potential to keep expanding.
One example in Spain is Pastas Gallo, acquired by ProA Capital in 2019 in a deal that is representative of this type of strategy.
Investment horizon: 5–7 years
Goal: Increase the company's value and sell it to another fund, a strategic buyer, or individual investors.
Turnaround funds
Turnaround funds specialize in companies in crisis, whether due to financial, management, or market problems. They take on a higher risk profile, but with a potentially higher return. Their role is to step in, restructure, and reposition the business to save it and make it viable.
A textbook case was General Motors, rescued by private equity funds after filing for bankruptcy in 2009.
Focus: Aggressive restructuring and recovery
Return: Very high if the turnaround succeeds
Growth equity funds
These funds invest in growth-stage companies that have already validated their business model but need capital to scale. Unlike venture capital, their focus isn't exclusively on tech, and they don't seek majority control. They provide capital and support while staying less involved in day-to-day management.
A notable example is Spotify, which received $1 billion from TPG and Dragoneer in 2016, before going public.
Goal: Accelerate growth without replacing the founding team
Typical exit: Sale of the stake after about five years
Which fund is right for your company?
There's no universally “best” fund; it depends on your company's situation and needs:
- If your company is well established and you're looking for succession or structured growth, a buyout fund may be ideal.
- If you're going through financial or management difficulties, a turnaround fund could help you save and reposition your company.
- If you run a young or expanding company, growth equity funds are perfect for scaling with the right backing.
