A private equity company is an investment company which raises money to help companies grow by purchasing stakes. This differs from the individual investors who purchase stock in publicly traded companies. This gives them the right to dividends, but has no direct impact on the company’s decisions and operations. Private equity firms invest in a group of companies referred to as portfolios and attempt to take control of these businesses.
They usually purchase an enterprise that has potential for improvement, and make changes to increase efficiency, reduce costs, and increase the company. Private equity firms could make use of debt to buy and take over a business which is known as leveraged buying. They then sell the company at profits and collect management fees from the companies that are part of their portfolio.
This cycle of buying, selling, and re-building can be a long process for smaller companies. Many are seeking alternative funding methods that permit them to access working capital without the burden of the PE firm’s management fee.
Private equity firms have fought against stereotypes of them being strippers, highlighting their management expertise and successful transformations of portfolio companies. Some critics, including U.S. Senator Elizabeth Warren, argue that private equity’s obsession with making quick profits erodes the value of the company and is detrimental to workers.
