A private equity company is an investment company which raises money to help companies grow by buying stakes. This is different from individual investors who purchase shares in publicly traded companies, which gives them dividends, but doesn’t grant them a direct say in the company’s decisions and operations. Private equity firms invest in a group of companies, called a portfolio, and generally look to take over management of these businesses.
They usually identify a company that could be improved and buy it, making adjustments to increase efficiency, cut expenses and help the business grow. Private equity firms can utilize debt to purchase and take over a business this is referred to as leveraged buying. They then sell the company for a profit and pay management fees to companies in their portfolio.
This cycle of buying, selling and then reworking can be lengthy for smaller companies. Many companies are looking for alternative funding methods to allow them access to working capital without having the management fees of the PE firm added.
Private equity firms have pushed back against stereotypes that paint them as corporate strippers assets, stressing their management expertise and examples of transformations you can check here that have been successful for their portfolio businesses. But critics, like U.S. Senator Elizabeth Warren, argue that private equity’s focus on generating rapid profits damages the long-term value and causes harm to workers.
