Private Equity

Key Highlights

• Private equity (PE) is when investors put money into private companies (or public ones that go private) to make them more valuable and sell them later for a profit.

• Types of private equity strategies includes buyouts, growth equity and venture capital.

What is Private Equity?

Private equity (PE) is when investors put money into private companies (or public ones that go private) to make them more valuable and sell them later for a profit. Special firms or funds manage these investments, using money from big players like pension funds or wealthy individuals.

How Private Equity Works?

• Fund Setup: PE firms create funds by pooling money from big investors (like pension funds) and rich individuals. The firm runs the show (general partner), while investors (limited partners) provide the cash.

• Investment Process: The fund buys big chunks of companies, often using some of their own money and borrowing the rest (called a leveraged buyout). They work to improve the company’s operations or strategy before selling it.

• Time Frame: They usually hold onto companies for 4–7 years, fixing them up to boost their value.

Types of Private Equity Strategies

• Buyouts: Buying most or all of a company, often with loans, to revamp it and sell it for a profit.

• Growth Equity: Giving money to growing companies that need cash to expand, without taking full control.

• Venture Capital: Investing in young startups with big potential, usually for a smaller share of the company.

Value Creation and Exit Strategies

• Improvements: PE firms bring in better management, streamline operations, or boost sales to make the company worth more.

• Financial Moves: They use loans to increase returns, tweak the company’s finances, or pay off debt with the company’s earnings.

• Exit Plans: They sell the company to another firm, take it public through an IPO, or refinance it to cash out.