Private equity is capital provided by Private Equity funds (PE).� They take an equity stake in your company.� This can be via the sell down of your shares, or the issuing of fresh capital.
It is usually for the bigger end of town, when your business is established, profitable, big and safe.� PE funds are not risk takers and have access to large amounts of capital.�
PE investors also like to provide strategic operational and financial advice and therefore usually require a board seat, if not majority control of the company.� They make their money by buying a company at reasonable multiples, then building the profit over 3 to 5 years.� Then they usually exit via an IPO or a trade sale.
PE firms are basically clever fund managers who invest capital on behalf of institutional clients. They offer their investors a higher return - usually around 25% pa to reflect the slightly higher risk of this asset class.�
Why use private equity?� There are many reasons.� Firstly, there may be significant market opportunities for your company both here and abroad but you lack the cash to pursue them.� Maybe you are growing too quickly and need funding to scale up and open new premises.
So if you are a well established company, with solid and consistent cash flows, growing profits, in a stable industry, with good management, then a PE fund may be for you.
If you are a start up, early stage or fast growing business with lots of blue sky ahead, then you'd be wasting your time approaching PE funds
At the end of the day, you have to be willing to trade a share of your business in order to own a smaller stake in a potentially much larger business.
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