Understanding Private Equity: Leveraged Buyouts

Private equity is such a big thing in the business world. If you’re struggling to understand private equity then you’re in the right place! This article will give you a bit of information on private equity and leveraged buyouts and how it’s done.

What is Private Equity?

Private equity a term that is used quite frequently in the business world. When you aren’t sure on what ‘Private Equity’ means you’re going to be pretty lost.

So here’s how it works, essentially private equity consists of funds and investors who try buy out companies.

So a leveraged buyout is when you contribute capital and borrow some money to buy both private and public companies. This method is used when investors want to buyout the whole company rather than just buy a couple of shares. If you buy the entire company no one else can buy it.

How do leveraged buyouts work?

So these sort of deals are normally sorted out by private equity firms. The firms usually pull together money from different sources to obtain companies so they can resell them at later stage.

Private equity is a good option for companies who have been around for quite some time but perhaps aren’t managing to keep up. Private equity firms can simply buyout the company and give it a new lease of life. The money they inject into the company can then be used for expansion or further development.

What happens to the existing workforce?

This is purely dependant on the deal but usually private equity doesn’t mean a loss of jobs or a massive change of direction. However don’t expect there to not be any changes etc. There will most likely be restructuring etc  

Why is it so popular?

Leveraged buyouts might sound like a hassle, a nuisance etc but when done right the deal can involve a lot of money and improve the company.

The investment can secure a company’s future and save a company from the red. If a high value, well known and respected private investment firm picks up your company the exposure alone will be great for the company. It’s very important for private equity firms to have a good reputation.

Are leveraged buyouts legal?

Yes they are legal and is a very common practice around the world.

Is private equity a bad thing?

Theres two sides to private equity, it’s seen by many as a tactic to destroy companies in order to make a bit of money. However, others view it as a way of saving jobs and creative value.

One of the main problems and concerns with private equity is the power it has in the market which is why many countries have put laws, rules and regulations into place to ensure this doesn’t happen that easily.

Theres always going to be someone out to get you in the private equity world. However, most firms are hard working and just want to build a successful portfolio.

 

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