All About Private Equity

Equity capital not listed on a public exchange is called private equity and has investors and funds investing with private companies directly. Those that invest in public companies, do so in order to delist the equity. Retail and institutional investors are the majority investors present on the field as they have the ability to commit huge sums for longer periods, required to initiate a turnaround of a distressed company or an even of liquidity.

Since 1970’s, PE’s have increased steadily in both size and significance. Often they pool their funds in order to make large public entities private. To fund very large buyouts, a large fund is issued through leveraged buyouts. They then attempt to improve the financial health of the company to be able to sell it again at a later stage.

So what do the PE investors actually do?

Raise Money- As discussed above, this forms an essential part of Private Equity Investment in India. The job includes looking for capital commitments from external financial institutions.

Deals- Closing deals after sourcing them is another aspect. This part includes looking for companies with a potential for acquisition considering the company profile in terms of nature of work, management, type of industry and financial performance in previous years. Personal relationships and partner’s reputation play a key role here.

Improve- Operations, cost structure and management of the company are made efficient. The methods do not include participating in the day to day functioning of the company but instead becoming a board member.

Resell- the end game for all the hard work is to ultimately sell off the portfolio company at a profit. It takes about 3-7 years to culminate the deal.

One of the booming asset classes in this area is real estate funds that mainly deal with property. Companies like Everstone.