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What Is a Private Equity Firm?

Private equity firms are an investment company that collects funds from investors to purchase stakes in companies and help them expand. This is different from private investors who purchase shares in publicly traded firms which pay dividends, but does not grant them any direct control over the company’s operations or decisions. Private equity firms invest in a group of companies referred to as portfolios and are looking to control of these businesses.

They will often find a business that has room for improvement and purchase it, making changes to improve efficiency, cut costs and help the business grow. In certain instances private equity firms utilize loans to purchase and take over a business called a leveraged buyout. They then sell the company at a profit and collect management fees from the companies that are part of their portfolio.

This cycle of purchasing, enhancing and selling can be a time-consuming and costly for companies, especially smaller ones. Many companies are looking for alternatives to funding options that will allow them access to working capital without the management fees of a PE firm.

Private equity firms have been able to fight against stereotypes that paint them as corporate strippers assets, by highlighting their management try this web-site skills and demonstrating examples of transformations that have been successful for their portfolio companies. Critics, such as U.S. Senator Elizabeth Warren argues that private equity’s focus is on quick profits, which undermines long-term value and hurts workers.