Private equity investments: Difference between revisions
From CEOpedia | Management online
(Infobox update) |
m (Text cleaning) |
||
| (4 intermediate revisions by 2 users not shown) | |||
| Line 1: | Line 1: | ||
'''Private equity''' is a form of medium to long term [[financing]] of private firms that are not yet listed on stock exchange. Private equity [[money]] can be used to establish a [[company]], expand its operations, repurchase all or part of an existing business in collaboration with its [[management]] or to revive the company. | |||
Acquisition of the Private equity money is very different from raising loans from various lenders such as banks. Lenders have the right to [[interest]] and repayment of principal amount, regardless of success or failure of the [[project]]. The financing of the Private equity is obtained in exchange for shares in a company and investors' profits depend on the company growth and profitability. | |||
Acquisition of the Private equity money is very different from raising loans from various lenders such as banks. Lenders have the right to interest and repayment of principal amount, regardless of success or failure of the [[project]]. The financing of the Private equity is obtained in exchange for shares in a company and investors' profits depend on the company growth and profitability. | |||
==Forms of private equity funds== | ==Forms of private equity funds== | ||
The concept of Private equity is composed of three segments of capital investment: | The concept of Private equity is composed of three segments of capital [[investment]]: | ||
* '''[[Venture capital]]''' - is an investment in new, private [[enterprise]]. The main objective of those involved in this type of financing is to help growing businesses in the difficult period of "maturation". | * '''[[Venture capital]]''' - is an investment in new, private [[enterprise]]. The main objective of those involved in this type of financing is to help growing businesses in the difficult period of "maturation". | ||
* '''Buyout capital''' - consists of the buyout, in cooperation with existing or new management, of part or all of an existing business. To carry out the transaction companies generally use a significant amount of debt capital | * '''Buyout capital''' - consists of the buyout, in cooperation with existing or new management, of part or all of an existing business. To carry out the transaction companies generally use a significant amount of debt capital | ||
* '''Mezzanine capital''' - is a major provider of capital for further development of projects previously funded by Venture Capital. Usually with it is the case when not fully matured company [[needs]] additional funds in the form of credit, and banks are still reluctant to grant it | * '''[[Mezzanine capital]]''' - is a major provider of capital for further development of projects previously funded by Venture Capital. Usually with it is the case when not fully matured company [[needs]] additional funds in the form of credit, and banks are still reluctant to grant it | ||
==Benefits of private equity capital== | ==Benefits of private equity capital== | ||
* Companies funded by the Private equity generally grow faster than companies without such forms of support. This is possible through a combination of capital and expertise contributed by the investors. | * Companies funded by the Private equity generally grow faster than companies without such forms of support. This is possible through a combination of capital and expertise contributed by the investors. | ||
* Private Equity allows you to realize the ambitions of the founders of the company and provides stable conditions for making strategic decisions. | * Private Equity allows you to realize the ambitions of the founders of the company and provides stable conditions for making [[strategic decisions]]. | ||
* The overall objective of investors is to increase the value of the company. | * The overall objective of investors is to increase the value of the company. | ||
* Private equity funds often operate in conjunction with other financial institutions and can assist in obtaining all necessary funding for the project. | * Private equity funds often operate in conjunction with other financial institutions and can assist in obtaining all necessary funding for the project. | ||
| Line 34: | Line 18: | ||
'''See also:''' | '''See also:''' | ||
* [[Primary market]] | * [[Primary market]] | ||
{{infobox5|list1={{i5link|a=[[Funding Operations]]}} — {{i5link|a=[[Direct paper]]}} — {{i5link|a=[[Capital Commitment]]}} — {{i5link|a=[[External sources of finance]]}} — {{i5link|a=[[Appropriation of retained earnings]]}} — {{i5link|a=[[Source of financing]]}} — {{i5link|a=[[Investment and financing]]}} — {{i5link|a=[[Venture capital]]}} — {{i5link|a=[[Acquisition Financing]]}} }} | |||
==References== | ==References== | ||
| Line 39: | Line 25: | ||
* Bierman H. (2003), ''Private Equity Transforming Public Stock to Create Value'', John Wiley & Sons, New York | * Bierman H. (2003), ''Private Equity Transforming Public Stock to Create Value'', John Wiley & Sons, New York | ||
* Kaplan, S. N., & Schoar, A. (2005). ''[http://dspace.mit.edu/bitstream/handle/1721.1/5050/4446-03.pdf Private equity performance: Returns, persistence, and capital flows]''. The Journal of Finance, 60(4), 1791-1823. | * Kaplan, S. N., & Schoar, A. (2005). ''[http://dspace.mit.edu/bitstream/handle/1721.1/5050/4446-03.pdf Private equity performance: Returns, persistence, and capital flows]''. The Journal of Finance, 60(4), 1791-1823. | ||
[[Category:Financial markets]] | [[Category:Financial markets]] | ||
[[Category:Strategic management]] | [[Category:Strategic management]] | ||
[[pl:Private Equity]] | [[pl:Private Equity]] | ||
Latest revision as of 03:33, 18 November 2023
Private equity is a form of medium to long term financing of private firms that are not yet listed on stock exchange. Private equity money can be used to establish a company, expand its operations, repurchase all or part of an existing business in collaboration with its management or to revive the company.
Acquisition of the Private equity money is very different from raising loans from various lenders such as banks. Lenders have the right to interest and repayment of principal amount, regardless of success or failure of the project. The financing of the Private equity is obtained in exchange for shares in a company and investors' profits depend on the company growth and profitability.
Forms of private equity funds
The concept of Private equity is composed of three segments of capital investment:
- Venture capital - is an investment in new, private enterprise. The main objective of those involved in this type of financing is to help growing businesses in the difficult period of "maturation".
- Buyout capital - consists of the buyout, in cooperation with existing or new management, of part or all of an existing business. To carry out the transaction companies generally use a significant amount of debt capital
- Mezzanine capital - is a major provider of capital for further development of projects previously funded by Venture Capital. Usually with it is the case when not fully matured company needs additional funds in the form of credit, and banks are still reluctant to grant it
Benefits of private equity capital
- Companies funded by the Private equity generally grow faster than companies without such forms of support. This is possible through a combination of capital and expertise contributed by the investors.
- Private Equity allows you to realize the ambitions of the founders of the company and provides stable conditions for making strategic decisions.
- The overall objective of investors is to increase the value of the company.
- Private equity funds often operate in conjunction with other financial institutions and can assist in obtaining all necessary funding for the project.
- Thanks to funding by the Private equity company need not to publish reports on the planned profit (the need exists, when the company raises capital through the stock exchange).
See also:
| Private equity investments — recommended articles |
| Funding Operations — Direct paper — Capital Commitment — External sources of finance — Appropriation of retained earnings — Source of financing — Investment and financing — Venture capital — Acquisition Financing |
References
- Arundale K. (2003), A Guide to Private Equity, Price Waterhouse Coopers, London
- Bierman H. (2003), Private Equity Transforming Public Stock to Create Value, John Wiley & Sons, New York
- Kaplan, S. N., & Schoar, A. (2005). Private equity performance: Returns, persistence, and capital flows. The Journal of Finance, 60(4), 1791-1823.
