A Beginner’s Guide to Private Equity

Get ready to learn all about the fascinating world of private equity investment.

What is private equity investment?

 

If you’re new to the world of investment opportunities, then private equity can be used to describe numerous types of funds that successfully pool financial resources from a group of investors in order to amass huge amounts of capital.  This fund is then used to acquire states in different companies.

The term ‘private equity’ is usually associated with funds looking for mature investment opportunities.  In most cases, a fund will target revenue-generating companies that are crying out for revitalisation in order to become far more profitable.  Whereas venture capital investment often goes after younger companies involved in cutting-edge sciences, private equity funds are usually more attracted to established businesses.  Some key examples of established businesses include franchise businesses, manufacturing and service businesses.

 

How private equity investment works

 

In some cases, a private equity firm will opt to buy the company outright.  Other PE strategies include specifically buying out the founder of the company, providing expansion capital, cashing out original/existing investors or providing recapitalisation costs for struggling businesses.

 

Private equity can also be associated with a leveraged buyout, in which a fund opts to borrow additional funds to help enhance its buying power.

 

Upside: Are original investors crying out for a payday? Is the founder becoming a hindrance?  Has the business lost its mojo and is in dire need of a cash injection? Private equity may be the way to go in these situations.

 

The private equity fund is also likely to come up with a range of new ideas and even bring new people into the fold who may be the catalyst the business needs to perform.

 

Downside: The traditional private equity investment strategy is not suitable for younger companies in their infancy stages.  It’s always important to remember that the primary goal of any private equity fund is to increase the overall value of the company to provide a return for investors.  This is why the workforce, along with the business’ long-term success can often become secondary to their primary goal. You should definitely prepare yourself for a touch of ruthlessness.

 

The twist:  In recent years, search funds have been gaining in popularity.  With this type of private equity fund a group of investors choose to throw backing money being a would-be entrepreneur rather than pooling their money to invest in a business.  This would-be entrepreneur then searches for the best business opportunities to acquire and run.

 

This type of private equity investment could be the perfect solution for a business that not only requires investment, but also a new top executive to help turn things around.

 

If you think private equity investment is something your business could benefit from, then it’s likely time to call in the experts.  Firms like Goodwin have a strong reputation in key sectors including healthcare, technology, business and financial services, along with manufacturing.  Their industry relationships and market insights make them a valuable ally at every stage of the investment life cycle.

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