Private Equity Explained

Private Equity is capital invested by high net worth individuals and institutions for the purpose of investing and acquiring equity ownership in companies. The funds raised are used to purchase shares in private or public companies. Private equity firms raise funds via investment banks, trusts and corporate institutions and high-net worth individuals and manage the funds on their behalf in order to make significant returns for their shareholder clients often with an investment horizon of between 3-7 years.

Most Investment Banks are attracted to the larger deals so this leaves vast opportunities for the Private Equity firms in the middle market. Middle-market companies offer significant financial upside to private equity firms as many of these smaller companies fall below the radar of large multinational corporations. These opportunities are well suited to private equity firms, as they possess the insight and savvy to exploit such opportunities and take the company to the next level.

There are vast ranges of investing preferences across thousands of private equity firms in existence. Some are strict financiers who are who depend on management to grow the company and supply their owners with appropriate returns and there are active investors that provide operational support and guidance to management in order to help them structure and grow the business.

A popular exit strategy for private equity involves growing and improving a middle-market company and selling it to a large corporation for a high profit. Therefore it is imperative for private equity investors to have experienced, ambitious and reliable management in place.