Private equity investments are investments made in private companies as opposed to investments in companies that are publicly traded on a stock exchange. These types of investments can also be used to take a company from public to private status through a buyout process.
Private equity firms make these investments in order to bring in a high profit based on the company's earnings or on the ultimate sale price of the company in the future. They also make a profit by taking private companies public. Private equity firms are generally made up of wealthy individuals who may not want their investments to be driven by the host of investors involved in large public companies. Private equity firms are usually smaller groups of people who are interested in small to mid-size companies. That way each investor has a bit more control than he or she would have in a public trading arena.
But why would a privately owned company be willing to sell any part of itself to a private equity firm? The short answer is that private equity investments are merely another method of financing that is available. Perhaps the company wishes to expand and needs quick capital to do so. Perhaps it is a technology development company on the cusp of developing a new product that in turn requires new equipment to manufacture. A financial shot in the arm could allow it to acquire that equipment and, hopefully, produce a new product that will increase sales income. Bringing in private investors would be a small trade-off to a greater prize while "going public" would bring out more intrusive regulations along with a smaller profit for everyone involved.
An alternate question is why would a publicly traded company want to attract private equity investors? Many companies would prefer to be in private hands, thereby limiting the role of government regulation in their financial activities. Owners of such companies may have discovered that going public has resulted in a loss of some control over day to day business activities. Publicly traded companies often have thousands of investors to whom the company's management must answer. Taking such a business back to private status may result in better long-term prospects for growth and profit.
So where can a business owner go to find private equity investments? The simple answer is, once again, at the bank. Lending officers usually have contacts with private lender groups and they may be willing to make referrals to a customer who isn't interested in a traditional bank loan or other types of corporate credit to achieve his or her goals. Referrals from other business owners in the same industry could lead to private equity firms, as well. And there is always the Internet. Many investment firms have created an online presence for themselves and can even conduct private equity investment activities over the web.
If the desired loan amount isn't too great, the business owner may even approach family and friends who might be interested in investing. A group of related individuals might enjoy funding a "family" business and then expand into other investment activities. After all, all private equity firms must start somewhere, and they are usually more productive when the investors have some common interest. On the other hand, family and business often do not mix well. Therefore, existing relationships and personalities must be taken into consideration when forming such a group. Still, it's one alternative to traditional equity firms that any business owner would be wise to consider.
Corporate Credit Concepts specializes in Private Equity Investments. For more information about Private Equity Investments and how it might benefit your business, please CLICK HERE for a free phone consultation.