Private Equity

What is Private Equity ?

Private equity is a blanket term, which refers to companies that pool investors’ funds to invest in undervalued companies and assets. The aim of private equity is to provide a high return to investors on those assets, assigning expert management teams to manage the companies and assets outside of the glare of public markets

The investment targets can be public or private, but if public , will be take private by the private equity company over seeing the investment

How does Private Equity Work ?

Private equity (PE) refers to investments made in private companies that are not publicly traded on stock exchanges. Private equity firms raise funds from various sources, such as institutional investors, high net worth individuals, and pension funds. The funds are then used to make investments in private companies that have growth potential.

Financial Sponsor

Investor

Private Equity Fund

Portfolio Company

Portfolio Company

Portfolio Company

Portfolio Company

Portfolio Company

The Process

The Capital Raise
The period in which the private equity team seeks to convince investors to invest their capital in their fund or (sometimes) their comapny
Deal Sourcing
The period in which the private equity company looks for suitable opportunities that fits its investment thesis
Post-acquisition Operational Improvement
The period in which the acquired company is restructured by the private equity team to generate more value
Liquidation
The period in which the acquired company is either sold or brought to an IPO enables the private equity company and its investors to liquidate their investments. The end goal of this process is to generate a higher multiple of earnings (I.e. value addition) than the company or asset was acquired for
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Characteristics of Firms that Private Equity Invests in

If there is a single theme that unifies all private equity investments, it is that the companies or assets being invested in are undervalued in some way.

Either because their current owners have not spotted the potential of the business, have mismanaged it, or have not been able to access the capital to bring the company to scale, the private equity company seeks to add value that will ultimately generate investor returns.

Beyond this, private equity companies also pay attention to issues such as

  • Industry and market dynamics
  • Cash generation potential of business
  • Competitve positioning
  • Technology / capital requirements (insert the link on capital investments)
  • Potential to disrupt an industry

Senior Debt & Asset Backet (stretch) Lending

Senior Subordinated Debt

Convertible Subordinated Debt

Redeemable Preferred Stock

Equity

Mezzanine