What Does ‘Acquisitions’ Actually Mean? A Plain-Language Guide

“I work in Acquisitions in private equity” is a sentence that tends to end a conversation at a family dinner. It sounds like something between banking and corporate raiding. Since Ortaku’s founder has this background, and it shapes how we think, it’s worth explaining in ordinary language.

Private equity, in one paragraph

“Private equity” simply means ownership of companies that aren’t listed on a stock exchange. A private equity firm collects money from investors, such as pension funds and wealthy families, and uses it to buy operating businesses: real companies with customers, staff and accounts. It then tries to improve and grow them, and usually sells them some years later, hopefully for more than it paid.

That’s different from two things it often gets confused with:

• A bank lends money and wants it back with interest. It doesn’t own the company.
• A venture capital fund buys small stakes in young companies, knowing most will disappoint and hoping a few grow enormously. Private equity generally buys established companies that already make money, and often buys control.

What “Acquisitions” means

An acquisition is one company or investor buying another company, in whole or in part. The Acquisitions team is the part of a firm that finds those companies and gets the purchases done. The job has roughly four stages.

1. Finding companies

Good companies are rarely advertised. Much of the work is talking to owners, advisers and people in an industry to find out who might be open to a conversation. Hundreds of companies may be looked at for every one that is bought.

2. Working out what it’s worth

The usual starting point is how much cash the business really generates in a normal year. People often use a measure called EBITDA: profit before interest, tax and certain accounting charges. It’s a rough stand-in for what the business itself earns, regardless of how it’s financed.

Price is then often expressed as a multiple of that figure. Here’s an invented example. A packaging company earns €200,000 a year in EBITDA. A buyer who pays four times that is valuing it at €800,000. A steadier, faster-growing company earns a higher multiple. A company that depends on one customer gets a lower one. Most of the arguing in a deal is about which of those it is.

3. Checking the story: due diligence

Due diligence is the process of verifying what the seller has said before any money changes hands. Are the accounts accurate? Does the company really own what it claims to? Are taxes paid? Will the biggest customer stay after the sale? What’s the risk nobody has mentioned?

It’s slow and unglamorous, and it’s where most of the value of the profession lies. A surprising number of deals die here, and many of them should.

4. Structuring the deal

Price is only one part of an agreement. How it’s paid matters just as much:

• An earn-out pays part of the price later, if the business hits agreed targets. This helps when buyer and seller disagree about the future.
• A vendor loan lets the seller take part of the price over time, which shows confidence in what’s being sold.
• Rollover means the seller keeps a stake and benefits from what comes next.
• Governance terms set out who decides what. Who sits on the board? Which decisions need everyone’s agreement? What information does each owner get, and how often? What happens if a partner wants out?

Two deals at the same headline price can be very different in practice. Experienced buyers know this, and many first-time buyers and sellers don’t.

And after the purchase?

This is where private equity earns both its reputation and its criticism.

At its best, new owners bring proper financial reporting, better management, investment the previous owner couldn’t afford, and access to new customers. At its worst, firms have loaded companies with debt and cut too deep in pursuit of a quick return. Both things are true, and it would be dishonest to mention only the first.

We’re not proposing to bring highly leveraged buyouts to Kosovo. What’s worth bringing is the discipline: the habit of asking careful questions, and writing down the answers.

Why this is useful for Kosovo’s small businesses

A global private equity firm wouldn’t look twice at most Kosovo companies. They’re too small. But small and medium-sized enterprises make up 99.8% of Kosovo’s registered enterprises and 79% of its employment, according to the OECD, and the same way of thinking applies to them. In some ways it matters more.

Owners may not know what they have. Many owners have never had to calculate what their company is worth. Without a method, the price becomes a matter of pride or guesswork, and deals fall apart over a gap that some clear analysis might have closed.

Succession is coming. Many of Kosovo’s private companies were started in the years after 1999. Their founders are approaching the point of asking what comes next, and not every child wants to take over. An orderly sale can keep a good company, and its jobs, alive.

Diaspora investors need a way to see. Someone in Munich can’t drop into the workshop every week. Due diligence and reporting are how a person at a distance replaces local gossip with real information.

Written agreements prevent the classic disputes. Partnerships between relatives and old friends often run on trust, right up until something goes wrong. Governance terms agreed early make it possible to protect the relationship as well as the money.

Structure makes difficult deals possible. Where bank financing for a purchase is hard to arrange, an earn-out or a vendor loan can close a gap that price alone can’t.

The short version

Acquisitions is the work of finding good companies, working out what they’re worth, checking that the story is true, and agreeing a deal both sides can live with afterwards.

Those skills are common in Frankfurt and Zürich, and much harder to come by when you’re selling a family business in Gjakova, or trying to buy into one from abroad. Making them available is a large part of why Ortaku exists.

This article is general information, not investment advice. The figures in the example are invented for illustration, and multiples vary widely by company and sector.