Private Equity in Portugal: how funds that buy companies work

Selling a company to a private equity fund can resolve succession issues, allow for the exit of partners, or finance a new phase of growth. The operation also changes the way decisions are made, results are monitored, and the future of the company is prepared.

For a Portuguese entrepreneur, understanding the model helps to do two things: choose investors with real alignment and compare proposals beyond just price. Not all funds buy the same type of SMEs, nor do they all intend to manage in the same way.

What is private equity?

Private equity is investment in the capital of unlisted companies. In a traditional model, a manager gathers commitments from investors into a fund, selects companies, negotiates stakes, and monitors investments until divestment.

The manager, the fund, and the company that signs the acquisition can be different entities. The entrepreneur must know who they are negotiating with, which vehicle is investing, and who has the power to approve the purchase. A positive meeting with the team does not equate to approval from the investment committee.

The term is not limited to the complete acquisition of companies. It can encompass investments for growth, changes of control, and special situations. In Portugal, one should confirm the specific strategy rather than conclude, from the name "venture capital", that the entity only invests in startups.

Buyout and growth: two operations with different objectives

Buyout: acquiring control

In a buyout, the investor seeks a controlling position. They can buy the entire company or leave the founder and the team with a stake. It is a relevant model for owner exit, succession, and shareholder reorganisation.

Control allows for steering the strategy and choosing leadership within applicable agreements. If the seller remains in management, they need to distinguish their executive role from the rights they retain as a shareholder.

Growth: financing growth

Growth capital can finance commercial expansion, internationalisation, production capacity, or acquisitions. It may involve a minority stake and the continuation of the founder at the helm of the business.

Do not confuse money for the company with money for the owner. A capital increase finances the business; the purchase of existing stakes compensates those who sell. A proposal may combine both, but it should differentiate the components.

The Explorer Investments illustrates this distinction in its public information: it presents buyout strategies with controlling positions and growth strategies with minority stakes. The framing of an opportunity requires identifying the relevant strategy and vehicle, not just the name of the manager.

How do funds make money?

The return on investment results from what the fund receives during the holding period and at exit, compared to the capital invested. Value creation can come from revenue growth, margin improvement, better conversion of results into cash, complementary acquisitions, and debt reduction.

The price achieved in the future sale also influences the outcome. A plan that relies mainly on finding someone willing to pay a higher multiple is different from a plan based on demonstrable operational improvements.

The manager may receive management fees and a share of the profits, according to the fund documents. These revenues are not the same as the returns obtained by investors. Conditions vary; there is no one-size-fits-all formula applicable to all entities.

The role of debt

An acquisition can combine equity and debt. Debt reduces the capital needed upfront but creates payments and conditions to meet. If the business suffers a downturn, this structure can limit the margin to invest or distribute results.

The entrepreneur who remains in the company must understand the planned financing and test the ability to generate cash in a less favourable scenario. EBITDA is not available cash: investment, taxes, receivables, and inventory also count. The guide to financing business purchases helps to organise this analysis.

Investment horizon and exit

A traditional fund invests with a divestment perspective, within the rules and duration of the vehicle. The effective term depends on the plan, the market, and the evolution of the company. Avoid treating a duration presented in a conversation as a guarantee of sale on a specific date.

The exit can occur through a sale to an industrial group, another financial investor, or another agreed solution. For those retaining capital, it is important to know from the outset the rights to sell, the conditions for follow-up, and the mechanisms for resolving disagreements.

Also ask what phase of the cycle the fund is in and how it intends to finance future needs. The ability to buy today does not automatically respond to the ability to support all planned acquisitions and investments.

Buy-and-build, platforms, and add-ons

Buy-and-build means developing a group through a base company and complementary acquisitions. The base company is often referred to as a platform. An add-on is an acquisition that adds activity, customers, geography, or skills to that platform.

A small SME for a standalone acquisition may be of interest as an add-on. In this situation, the direct buyer may be a company already invested in by the fund. The process and integration will be different from that of a first acquisition.

Imagine, as a hypothetical example, a technical services group that buys a maintenance company in a region where it does not yet operate. The logic may be to complete geographical coverage and share administrative functions. For the seller, it is important to understand whether the brand remains, who manages the unit, and how the team will be integrated.

The Atena Equity Partners includes in its public thesis situations such as family succession, buy-and-build, restructuring, and separation of business units from groups, seeking control. It is an example of the diversity of situations analysed, not a confirmation of interest in any company for sale.

Which SMEs may interest private equity in Portugal?

There is no universal threshold for turnover, EBITDA, or price. Each strategy defines its framework. Some investors prioritise stability; others analyse operational transformation or distressed companies. The history of a manager does not replace the current criteria of the fund.

In preparation, it is worth explaining:

• Clients: why they buy, if they return, and what the concentration is.

• Results: how they have evolved and what adjustments are recurring or exceptional.

• Cash: necessary investment, seasonality, and payment terms.

• Management: who maintains the operation when the owner exits.

• Growth: concrete opportunities and necessary resources.

• Risks: dependencies, contracts, liabilities, and unresolved issues.

Also separate three metrics. AUM are assets under management; ticket is the amount invested in an operation; enterprise value is the value attributed to the business before adjustments that allow arriving at the value of the shareholders' capital. They are not equivalent. Adding announced fund sizes does not demonstrate, by itself, the current AUM of a manager.

How does an acquisition proceed?

1. Contact and framing: brief presentation, reason for sale, and verification of strategy.

2. Confidentiality: definition of access conditions to more detailed information.

3. Initial analysis: accounts, operation, management, and initial hypotheses of structure.

4. Indicative proposal: price, perimeter, financing, conditions, and timeline.

5. Due diligence: financial, commercial, operational, and legal validation.

6. Contracts and approvals: negotiation of final terms and closing conditions.

7. Closing and transition: payment, change of ownership, and execution of the agreed plan.

The sequence may vary, and some steps occur in parallel. Prepare a due diligence checklist before receiving scattered requests. An organised process reduces delays and allows distinguishing lack of information from a real problem in the business.

Advantages and commitments for the seller

The capital and acquisition experience can help professionalise management, execute growth, or organise succession. In return, the founder may lose autonomy, report more frequently, and accept objectives and reserved decisions.

Compare proposals by effective liquidity at closing, pending conditions, and risk of future payments. If there is reinvestment from the seller, evaluate it as a new investment: rights, debt, dilution, information, and exit possibility matter as much as the percentage held.

A variable component dependent on results requires clear criteria. Changes in business policies or integration into another group can affect the metrics used. These points should be negotiated with appropriate support, without assuming that an announced price corresponds to a guaranteed receipt.

Differences for family office and search fund

A family office manages family wealth and can invest directly, without the same cycle as a traditional fund. An independent sponsor arranges capital for specific operations. A search fund typically focuses on an entrepreneur looking for a company to manage.

The categories may overlap in the source of funds: a family may finance a fund or an operation led by a sponsor. Compare who leads, who approves the capital, and who is responsible for management. To delve deeper into the entrepreneur-centred model, consult the article on Search Funds and the directory of Search Funds.

Preparing a conversation with investors

Before presenting the company to potential buyers, define how much you want to sell, whether you want to continue in management, and what your essential conditions are. Work on a valuation estimate of the company based on verifiable information.

For investors, a useful step is to compare the thesis with existing acquisition opportunities, clearly indicating sector, desired size, intended role, and decision-making process. The entities mentioned in this article are editorial examples, with no implied association or partnership with the Comprar Empresa.

Frequently asked questions about private equity

Is private equity the same as venture capital?

In international usage, private equity is a broad term for investment in unlisted companies. In common usage, it is often distinguished from venture capital, which is oriented towards early-stage companies. In Portugal, the term venture capital can also encompass strategies for established companies.

Does a fund always buy the entire company?

No. A buyout seeks control without necessarily requiring the purchase of 100%. A growth strategy may involve a minority stake. The agreed rights also condition the autonomy of the founder.

What is the minimum EBITDA to sell to private equity?

There is no minimum value common to all funds. It depends on the strategy, the vehicle, the sector, and whether the company is a platform or a complementary acquisition.

Can the founder continue in the company?

Yes, if that is the agreement. They can continue as a manager, shareholder, or only support the transition. Roles, remuneration, powers, and exit must be defined separately.

Is AUM the money the fund can pay for my company?

No. AUM corresponds to assets under management according to the disclosed methodology. It is not the ticket for an acquisition, nor proof of available capital or approved financing.