Private Equity

Equity securities of companies that have not "gone public" (are not listed on a public exchange). Private equities are generally illiquid and thought of as a long-term investment. As they are not listed on an exchange, any investor wishing to sell securities in private companies must find a buyer in the absence of a marketplace. In addition, there are many transfer restrictions on private securities. Investors in private securities generally receive their return through one of three ways: an initial public offering, a sale or merger, or a recapitalization.

Isn’t that venture capital?

The terms ‘venture capital’ and ‘private equity’ are often used interchangeably but, strictly speaking, venture capital refers to the provision of funds for new and developing businesses, while private equity is more usually associated with MBOs and MBIs.

What do they do?

The job is varied and entrepreneurial. Private equity specialists are responsible for finding potential deals and execution of the deal itself right through to the realisation of a private equity investment, be that through an initial public offering (IPO) of shares or a sale to a private buyer.

Main sources of capital received by private equity companies include pension funds, insurance companies, banks, endowment funds, companies and wealthy individuals. Private equity specialists structure tailor-made financing packages to meet the needs of investee companies.

What is their job like?

Work is varied. One fund might have 10 investments in different sectors. The main tasks of the job are:
• finding businesses that might be worth investing in;
• researching potential investments;
• making investment recommendations;
• supporting the businesses invested in.

When looking for companies to invest in, private equity specialists consult analyst at investment banks, attend trade shows and investment conferences, and ensure that they are up on every new development in their sector.

Researching potential investments is known as doing ‘due diligence’. This process can be extremely rigorous, sometimes taking a year or more to complete. It involves working with lawyers, accountants and technical consultants, as well as calling customers for references, investigating the competition, validating legal documents, visiting the business and interviewing the management team.

Private equity specialists are also responsible for supporting the businesses in which they have invested. This might include providing research and strategic planning, or negotiating on their behalf with investment banks.