{"id":14551,"date":"2022-12-12T08:31:54","date_gmt":"2022-12-12T07:31:54","guid":{"rendered":"https:\/\/eneasmagazine.com\/en\/?p=14551"},"modified":"2022-12-08T18:26:31","modified_gmt":"2022-12-08T17:26:31","slug":"what-is-a-private-equity-firm","status":"publish","type":"post","link":"https:\/\/eneasmagazine.com\/en\/bussines\/private-equity-en\/what-is-a-private-equity-firm\/","title":{"rendered":"What is a Private Equity firm?"},"content":{"rendered":"\t\t
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Private Equity firms are financial investors who wish to obtain high returns by acquiring shares\u00a0in companies with the potential to create shareholder value, and to do so they are willing\u00a0to assume a higher risk than when investing in other financial assets with lower\u00a0return potential.<\/span><\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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These buyers expect the management team to manage the business well, so that the value of their shares will increase and they can sell for more than the purchase price. In addition to investing in equity, these investors may provide some of the debt needed for the acquisition and play a role in convincing banks to lend the necessary financial debt. These investors are usually specialized and experienced in buyouts, so they can be of great help to the management team in preventing and resolving problems<\/b>.<\/span><\/p>

After the acquisition, Private Equity controls and monitors the management through monthly reports and meetings of the Management Committee and Board of Directors in order to closely follow the development of the company. They are usually specialized investors with experience in acquiring companies, creating value and subsequently selling<\/b> the companies, so they can be of great help to the management team in managing the companies. Financial investors are experts in selecting targets, negotiating and structuring sale and purchase agreements, negotiating debt with banks, designing a business plan that generates value, and selecting and incentivizing management. Once the business is acquired, they usually take an active role in managing the acquired business (hands-on approach<\/i>), trying to assist the management team as much as possible in implementing the business plan.<\/span><\/p>

When it comes time to sell the business (the exit), financial investors also play an important role in negotiating the sale and purchase of the business in order to maximize the capital gain.<\/span><\/p>

In recent years, they have found that taking a hands-on approach<\/b> (constantly assisting the management team) is more beneficial than a hands-off approach (just tracking results and holding board meetings), as it leads to better results.<\/span><\/p>

Private Equity firms can have two types of activity: the purchase of shareholding packages via capital increase to finance the development of the company and the purchase of companies through buyouts. In Spain, the Venture Capital & Private Equity Association (www.ascri.org<\/span><\/a>) has more than 200 members.<\/span><\/p>

Private equity firms manage third-party funds (pension funds, investment funds, family offices, insurance companies, etc.) for a temporary period (generally 10 years). They usually have a certain degree of specialization by type of operation (buyout or development), size of investment, sectors of activity and geographical area.<\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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In most cases, the companies in which Private Equity firms have a better evolution in terms of sales and profit growth, create more jobs and invest more than equivalent competitors; for this reason, public administrations favor the fiscal conditions of Private Equity firms as they invigorate and consolidate the business fabric.<\/span><\/strong><\/p><\/blockquote>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Functions of Private Equity companies.<\/span><\/strong><\/h4>

The following table shows the functions of private equity firms at each stage of the buyout.<\/span><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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Phase<\/strong><\/p>