Bringing institutional investors into a business – how does private equity work?

Private equity, still relatively uncommon among companies in Luxembourg, is considered a real lever for growth. But what exactly is private equity and how does it work? What implications does it have for a company's strategy? Pit Linster, Head of Businesses & Entrepreneurs at Banque de Luxembourg, and Anne Goedert, Family Practice Adviser at Banque de Luxembourg, discuss the main concepts behind this type of financing and the support and value it can offer entrepreneurs and business leaders to develop their projects.

First published in PaperJam on 25 June 2025

Pit Linster, Head of Businesses & Entrepreneurs at Banque de Luxembourg

How does private equity work?

Private equity refers to acquiring a stake in the capital of a non-listed company to enable it to finance its growth, embark on transformation projects or transfer ownership. This type of financing can be used at various stages in a company's life, such as when it is first established, for a development project, in the event of a crisis, or for the acquisition or transfer of the company. Depending on the investor, this financial investment may be accompanied by a strategic contribution in the form of know-how, expertise, a network, etc.

What added values does private equity offer the business?

Different investors bring different benefits but these may include the contribution of skills and networks, help to transform the business and the capacity to promote sustainable practices. Their equity investments enable companies to grow and innovate more effectively at the same time as creating value for the investors and society.

Why is this type of financing still not very widespread in Luxembourg?

Historically, private equity funds have been interested in larger companies than those that make up the Luxembourg economic landscape, which is characterised by small and medium-sized family businesses.

This is matched by Luxembourg’s financing culture being more focused on bank loans. Luxembourg businesses are generally less familiar with private equity as there are very few players in Luxembourg promoting it.

Another challenge is that opening their capital to third-party investors is not a natural step for a family business. Yet doing so can present a raft of opportunities.

In practical terms, what are its benefits for a family business?

In today's world, family businesses face a number of challenges and difficulties in ensuring their growth and sustainability. Bringing an institutional investor on board can offer real strategic advantages, ranging from financial stability to opening up new markets, not to mention improved governance and support in achieving sustainability goals. A professional external shareholder is also a reassuring presence for a business leader who is often isolated – and can also act as a sounding board. In other words, they provide a structural and objective overview that can help a family business overcome many challenges and bring a fresh perspective.

Anne Goedert, Key Clients Adviser at Banque de Luxembourg

How can the financial involvement of a third party facilitate the transfer of the business?

Whether assigning company shares to a director or key manager, for example, or with a view to passing the helm to the next generation, investment from a third party gives the capital breathing space so the business can be transferred in one or more stages. With the investor injecting the financial resources needed to buy a block of shares, the money raised can also be used to compensate (future) heirs who do not intend to join the family business.

How does Banque de Luxembourg promote this type of financing to its clients?

To help our clients gain a better understanding of this model, we organise workshops with input from entrepreneurs who have opted for private equity financing alongside experts from our exclusive partner, Crédit Mutuel Equity. At our last workshop, Nicolas Ruggieri, CEO of Batipart, a family business with an impressive track record, shared his experience with this type of financing.

At that event, Crédit Mutuel Equity, a subsidiary of our Crédit Mutuel Alliance Fédérale group, described its approach, which focuses on minority shareholdings and long-term support using its own capital, unlike many funds that invest the capital entrusted to them by third parties over shorter time horizons and seek a quick exit with high returns.

Crédit Mutuel Equity, which is a shareholder in more than 300 businesses, supports the companies in its portfolio throughout their transformation projects and growth with the genuine intention of preserving and strengthening the financial and non-financial value of the company over the long term. In the first place, the entrepreneur and Crédit Mutuel Equity choose each other. Then they move forward on the basis of a jointly defined roadmap and aligned interests, with transparency and mutual trust predominant in all their dealings.

Combining this virtuous circle with the Bank’s local knowledge of the family business market in Luxembourg benefits the business not only through additional capital but also thanks to a team of experts who draw on their know-how and network of professionals to refine the company's strategy and provide tailor-made support for its development.

We offer our clients the benefit of this approach, which is firmly rooted in our culture of support. As a strategic partner to Luxembourg entrepreneurs, the Bank aims to provide practical solutions to business leaders for whom bringing an institutional investor on board could be an opportunity.