A private equity investment is a type of alternative investment. Individuals own a portion of a company that is not publicly owned, quoted or traded on a stock exchange. Private equity investment strategies include executing leveraged buyouts, contributing venture capital and investing growth capital.
Private equity generally refers to capital investment for growing a new business to allow for expansion or development , operational change like restructuring or innovating to make it more profitable, financing an acquisition of another entity, taking a public company private entity (delisting it) to enable the advantages attendant on private status.
The factors that drive returns in public equity markets have little or no impact on private equity, enhancing private equity’s diversification potential. Private ownership enables long-term strategic focus as opposed to the public market focus on quarterly earnings.
There are three parts to invests in private equity, each stage represents a segment of the private equity management team’s acquisition strategy:
Buy an acquisition strategy is mapped out , capital is sourced for purchase ,an acquisition deal is completed.
Change ,once the company has been purchased, it is restructured or reorganized to enhance profitability ,It becomes, in effect, a new company.
Sell, after the company has been turned around and transformed, it is put on the market
It is sold at a profit ,the private equity investors share in the profits.
Companies use private equity investment to strengthen and develop in ways that traditional financing cannot provide. Private equity investments can span all stages of a company’s life cycle.
Venture capital: Seed money and funding for start-up and early-stage companies
Development, expansion or growth capital: An investment to help mature companies bring a new product to market, invest in a new plant or acquire a company
Buyout capital: Funding used to purchase an existing company or one of its divisions
Mezzanine (subordinated) debt: Debt financing used in a buyout
Restructuring capital: Capital infusion for distressed companies undergoing financial or operational reorganization