A private equity company is an investment firm which raises money to help companies grow by purchasing stakes. This is different than individual investors who buy stock in publicly traded companies which pay dividends, but does not grant them a direct say in the company’s decisions and operations. Private equity firms invest in a group of companies, also known as a portfolio. They typically look to take over management of those businesses.
They often purchase the company with potential for improvement, and then implement changes to improve efficiency, reduce costs, and increase the company. Private equity firms could utilize debt to purchase and take over a business which is known as leveraged purchases. They then sell the company for a profit and collect management fees from the companies that are part of their portfolio.
This cycle of purchasing, enhancing and selling can be time-consuming and costly for businesses particularly smaller ones. Many are looking for alternative financing methods that permit them to access working capital without the burden of a PE firm’s management fees.
Private equity firms have been able to fight against stereotypes that portray them as squatters of corporate assets, and have emphasized their management skills and demonstrating examples of successful transformations of their portfolio companies. But critics, including U.S. Senator Elizabeth Warren, argue that private equity’s focus on generating quick profits destroys long-term value and is detrimental to workers.
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