Mergers and Acquisitions basics for the Industrial Electronics and Communications Industry

The electronics and communications industries are very familiar with the traditional financ ing model for companies of venture capital startup, followed by a public offering to fund growth. An increasing trend throughout the technical sector is to use private equity funding to transition from venture capital to growth funding. Understanding private equity funding basics can provide an alternative to companies as they decide a strategic direction. Professionals in high-technology industries are commonly focused on the technical aspects of their products and services, often with a limited understanding of the ways companies are financed. We all are familiar with the model of how companies come into being via venture capital or private angel investors. Products or services are then developed and sold to customers, generating initial growth and profits. A strategy of either “going public” or selling the company to a customer or competitor after a few years is a normal way for founders to cash out and/or provide the company with funds to take growth and products to the next level. Although this model is valid and proven to be a reliable way for companies to get started, there may be economic times when going to the stock market for an initial or capital infusion public offering may be problematic or nearly impossible. Private equity groups (PEGs) are becoming an alternative to the stock market in providing funding for companies to grow through acquisition. Over the past 15 years, these growing trends have been engaged in active restructuring of many industries, including industrial electronics and communications. Understanding the basics of this alternative source of funding is an important element for company management when they are evaluating strategies for their company.