What Is a Private Equity Firm?

A private equity company is an investment company that invests in helping companies grow by purchasing stakes. This is different from private investors who purchase shares in publicly traded companies, which allows them to receive dividends, but has no direct influence on the company’s decision-making and operations. Private equity firms invest in a collection of companies, referred to as a portfolio, and usually are looking to take over management of those businesses.

They usually purchase a company that has potential to improve, and implement changes to improve efficiency, cut costs, and increase the company. Private equity firms could use debt to buy and then take over a business in a process referred to as leveraged buying. They then sell the company for a profit and collect management fees from the companies in their portfolio.

This cycle of buying, selling and re-building can be a long process for smaller businesses. Many are seeking alternative funding methods that allow them to access working capital without the burden of the PE firm’s management fee.

Private equity firms have fought back against stereotypes of them being strippers, highlighting their management expertise and successful transformations of portfolio companies. However, critics, such as U.S. Senator Elizabeth Warren, argue that private equity’s focus on making quick profits erodes the value of the company and causes harm to workers.


Written by Jorje

Soy fundador de CeroTACC, un mundo #singluten que abrió sus puertas en el 2010 para construir un punto de encuentro para todos los celíacos de habla hispana. Pueden escribirme a [email protected]