What Is a Private Equity Firm?

A private equity this link company is an investment firm that raises money to help companies grow by purchasing stakes. This differs from individual investors who buy stock in publicly traded companies that pay dividends, but doesn’t grant them any direct control over the company’s operations or decisions. Private equity companies invest in groups of companies, referred to as portfolios, and seek to take control of these businesses.

They usually identify a company that could be improved and buy it, implementing adjustments to increase efficiency, reduce costs and help the business grow. Private equity firms can use debt to buy and take over a company this is referred to as leveraged buying. They then sell the business at a profit, and pay management fees to companies in their portfolio.

This cycle of selling, buying, and re-building can be a long process for smaller businesses. Many companies are looking for alternative ways to fund their business that give them access to working capital without having the management costs of a PE firm.

Private equity firms have fought back against stereotypes portraying them as corporate strippers assets, highlighting their management expertise and examples of transformations that have been successful for their portfolio companies. But critics, including U.S. Senator Elizabeth Warren, argue that the focus of private equity on making quick profits erodes the value of the company and causes harm to workers.