Private Equity Investment: Future Scope in European Region - Research Proposal Example

?Private Equity Investment: Future Scope in European Region Private equity firms have undergone some structural changes over the last few decades. After the financial crisis of 2007, these changes have become more distinct and have affected the operations of the private equity firms. Almost all industries are developing by keeping pace with the rapid technological changes that are occurring in the era of globalisation. Many new industries are emerging and require a huge amount of financial support for their development. This paper looks into the future scope of private equity firms in Europe in the light of their growth opportunities. The study focuses on the development of the firms under impact of the growing bio-technology industry in Europe. Table of Contents Private Equity Investment: Future Scope in European Region 4 Introduction 4 Research Hypothesis 5 Scope of Research 5 Research Objective 5 Significance of Study 6 Literature Review 6 Research methodology 8 Rationale behind This Research 9 Works Cited 10 Name of student Name of professor Course title Date Private Equity Investment: Future Scope in European Region Introduction Private equity, particularly venture capital, is a method of financing provided usually by professional investors to companies that are young and innovative. These investors often ‘act as advisors or even managers, with the main goal of taking them to an Initial Public Offering (IPO) or a trade sale’ (‘Does Private Equity Investment Spur Innovation?’). Recent studies reveal that this method of financing young companies has developed over the last few decades and is comparatively new (Sommer 39). It is capable of casting real effects on the performance of the companies in which investment is made. Venture capital is the process of ‘transforming scientific knowledge into commercial output’ (‘Does Private Equity Investment Spur Innovation?’). In Europe, the private equity market is still in the nascent stage and there is a considerable scope for growth of private equity funds (Spangler 43). This paper presents a rich and comprehensive study of the private equity market in Europe and explains the process in which it is undergoing a continuous evolution. The empirical study presented in the second half of this paper verifies how growth of the private equity market would affect the technological progress in the bio-technology industry. Research Hypothesis The research hypothesis developed in this paper is to verify whether the technological development of the bio-technology industry in the 21st century is capable of making a significant impact on the growth of private equity firms in Europe. Scope of Research This research has been made on the growth opportunities that are present in the European private equity market. Various industries in European countries are still budding and firms belonging to these industries are needed to make a constant upgradation along with the technological advancements that are occurring globally (Jaeger 46). This paper identifies the opportunity for developments in the health industry that might be triggered by the evolution in the bio-technology industry. Identification of different areas that would be facilitated by the growth of private equity firms in Europe represents a vast scope for this study. Research Objective The research objectives of this study are: To find out the technological advancements in the bio-technology industry in the current situation; To find out the performance of private equity firms in Europe before the advancement in the bio-technology industry; To find out the impact of advancement in the bio-technology industry on private equity firms in Europe. Significance of Study The European market is still developing in the continent and the current research work provides a strong base for future research that would be conducted on this topic. The aim of this paper is to investigate all possible solutions of the problem that has been considered for research, rather than bring complete solutions to the research problem. A research work is considered good when it can accumulate all amicable and possible solutions and can reach the best possible solution after testing all the possibilities hypothetically (Stowell 7). This would itself make the research a success. The results obtained from this study would be useful for future research works and also assist the investors that are interested in making investments in bio-tech firms in the near future. Literature Review Investment banking has undergone a major change after the world faced the Great Depression during the 1930s. The financial crisis of 2007 has made more critical changes in the investment decisions made by the investors in the developed countries such as the United States and European countries. There have been some major regulatory changes in the operations of private equity firms in Europe. The development of various industries as a result of rapid technological changes, and the emergence of the modern sector such as the bio-technology firms are paving the way for growth of private investors. These industries require massive investments for their research and development departments. Stowell has emphasised the major changes that have occurred over the years in private security firms, and shows that the industry is constantly evolving (5). Private equity funds make investments in firms or projects that are rated as entailing a high market risk. While leveraged buyout deals with a mature firm and allows a private equity fund to gain control over a majority of the firm, while of angel investors or capital firms mainly invest in emerging firms (Kennickell, Starr-McCluer and Surette 54; Campbell et al. 5). When investments are made in small or medium-sized firms, it helps in ‘managing risk at the pre-investment stage’ (Smolarski 335). Since the beginning of the 21st century, private equity investment activities have received attention from all sections of the society: regulators, practitioners and academicians. In the advanced economies, the private equity market has outshone the performance of the other asset markets. At the global level, private equity funds control nearly US$1 trillion worth of capital (Kend and Katselas 173). The private equity industry in Europe has shown a slow progress since the mid 20th century. Only recently, the European Commission developed a regulatory intervention that would partially nullify the effect of national legislation of countries, which prevent professional investing companies and pension funds from investing money in risky capital markets. This has increased the interest of investors considerably and the level of activity of private equity firms has risen. Before this harmonisation drive, there were major differences among the European countries in terms of the degree of regulation over investment activities (Lossen 66). Nevertheless, over the last few decades, there has been a dramatic increase in the investment and fund-raising by private equity firms. Risk capital investment, as a percentage of GDP, in some European countries such as Finland, Denmark and Sweden is drawing near the US levels (‘Does Private Equity Investment Spur Innovation?’). Although private equity firms in Europe are showing a considerable growth in the present business platform, it is not totally safe to assume that these investment activities would be able to avoid public debate (Metrick and Yasuda 2306). It might be because of the growth or the pattern of growth, private equity associates itself with different public debates and scrutiny by the press and social media. These concerns include debates regarding the rewards earned by private equity firms and their partners, the support received owing to tax advantages, and the implications of leveraged buyouts on the employees in the firms in which investment is made. The impact of the borrowings made by organisations is also evaluated while studying the long-term performance of companies. The perceived concept of short-termism of private equity investors is another aspect of a major concern. It cannot be appropriately judged whether such concerns are capable of creating real problems in the economy or are triggered by the press for publicity reasons. Research methodology This research would involve both qualitative and quantitative methods of research. The researcher would collect secondary and primary data for the study. The literature study would be the source of secondary research. Information about some of the most influential private equity firms in Europe would be collected from secondary sources of research for making a quantitative analysis by using paired-t test. It would include national level changes made in the regulations concerning investment behaviour of a few noted institutional investors such as insurance companies and pension funds. Quantitative research would provide information about the performance of private equity firms in Europe before advancement in the bio-technology industry and would also help to evaluate the impact of advancement in the bio-technology industry on private equity firms in Europe (Chapple, Clarkson and King 85). Interviews would also be conducted with the managers and employees of private equity firms. It would reveal the level of technological advancements occurring in the bio-technology industry and the effects of these changes as realised by the employees and managers of the private equity firms. This information would enable the researcher to make a qualitative analysis of the data. Rationale behind This Research The current research project would focus on the impact of development in the bio-technology sector in Europe on the future growth of European private equity firms. This research is needed for the purpose of understanding the phases of development that the private equity firms are passing through, and to analyse the situation in which these firms see themselves after ten years. This project also holds importance beyond the academic point of view. The results of this project would help investors to understand the state of the bio-technology industry and the investment climate in the near future. Numerous research works have been made on the issue of growth of private equity firms in Europe; however, not much research has been conducted on the future prospects of European private equity firms with regard to the booming bio-technology industry. Hence, this study would serve as a rich contribution to the existing literature concerning private equity firms in Europe. Works Cited Campbell, John et al. ‘Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk’. Journal of Finance 56.1 (2001): 1–44. Print. Chapple, Larelle, Peter M. Clarkson and Jesse J. King. ‘Private Equity Bids in Australia: An Exploratory Study’. Accounting and Finance 50.1 (2001): 79–102. Print. ‘Does Private Equity Investment Spur Innovation? Evidence from Europe’. ECB. European Central Bank, 2009. PDF File. Jaeger, Lars. The New Generation of Risk Management for Hedge Funds and Private Equity Investments. New York: Euromoney Books, 2001. Print. Kennickell, Arthur B., Martha Starr-McCluer and Brian J. Surette. ‘Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Finances’. Federal Reserve Bulletin 86.1 (2000): 1–29. Print. Lossen, Ulrich. Portfolio Strategies of Private Equity Firms: Theory and Evidence. Berlin: Springer, 2007. Print. Metrick, Andrew and Ayako Yasuda. ‘The Economics of Private Equity Funds’. Review of Financial Studies 23.6 (2010): 2303–2341. Print. Smolarski, Jan. ‘Investment Analysis in the Private Equity Industry: A Study of La Porta’s Argument’. International Journal of Emerging Markets 2.4 (2010): 335–347. Print. Sommer, Claudia. Private Equity Investments: Drivers and Performance Implications of Investment Cycles. Berlin: Springer, 2012. Print. Spangler, Timothy. The Law of Private Investment Funds. Oxford: Oxford University Press, 2007. Print. Stowell, David P. Investment Banks, Hedge Funds, and Private Equity. Oxford: Academic Press, 2013. Print. Read More