A private equity company is an investment company that invests in helping companies grow by purchasing stakes. This differs from the individual investors who buy shares in publicly traded companies. This allows them to receive dividends, however, it has no direct influence on the company’s decisions and operations. Private equity firms invest in a set of companies, also known as a portfolio, and typically are looking to take over management of those businesses.
They typically purchase the company with potential for improvement. They then make adjustments to increase efficiency, lower costs, and expand the company. Private equity firms may utilize debt to purchase and take over a business, a process known as leveraged buying. They then sell the company at a profit, and take management fees from the companies that are part of their portfolio.
This cycle of acquiring, upgrading and selling can be a time-consuming and costly for businesses particularly smaller ones. Many companies are searching for alternative ways to fund their business that give them access to working capital without having the management costs of an PE firm.
Private equity firms have fought against stereotypes that portray them as thieves of corporate assets, by highlighting their management skills and demonstrating examples of successful transformations of their portfolio businesses. Some critics, including U.S. Senator Elizabeth Warren, argue that private equity’s focus on making quick profits destroys long-term value and harms workers.
