A private equity company is an investment firm that invests in helping companies grow by purchasing stakes. This is different than individual investors who invest in publicly traded firms which pay dividends, but doesn’t give them direct influence over the company’s decisions and operations. Private equity firms invest in a group of companies, referred to as portfolios, and seek to take control of these businesses.
They usually purchase an enterprise that has room for improvement, and make adjustments to increase efficiency, cut costs, and increase the business. Private equity firms might make use of debt to buy and take over businesses this is referred to as a leveraged purchase. They then sell the company for a profit and collect management fees from the companies in their portfolio.
This cycle of buying, selling and improving can be time-consuming for smaller businesses. Many companies are seeking alternative methods of financing that can give them access to working capital without the management costs of a PE company added.
Private equity firms have pushed back against stereotypes that portray them as squatters of corporate assets, highlighting their management skills and demonstrating examples of transformations that have been successful for their portfolio businesses. But some critics, including U.S. Senator Elizabeth Warren argues that private equity’s primary goal is quick profits that destroy long-term goals and damages workers.
