Private Equity

Private equity, also known as off-market equity or private equity, is a form of equity capital in which the investment in companies made by the investor is not tradable on regulated markets (stock exchanges). The investors can be private or institutional investors.

Private equity firms make long-term investments in companies that are not listed on the stock exchange and are considered "small caps" or "micro caps" by stock exchange standards (companies with low or very low market capitalisation)2. The generic term private equity covers a wide variety of forms and strategies such as leveraged buyouts, venture capital, distressed funding, growth capital or the secondary market.

Assets under management in private equity amount to USD 8.7 trillion worldwide. If the capital is made available to young companies (start-ups), it is referred to as venture capital, as this naturally harbours a high financial risk.

Private equity offers a number of advantages:

1. Image enhancement: An investment by a private equity company can improve the image of a company.
2. Strengthening the equity base and improving the balance sheet structure: Private equity can strengthen a company's financial stability.
3. Positive influence on corporate strategy: Private equity companies often have extensive management experience and can provide valuable strategic advice.
4. Strengthening the negotiating position with customers and suppliers: With a stronger financial base, a company can have a better negotiating position with customers and suppliers.
5. Support in the recruitment of managers: Private equity companies can help to recruit highly qualified managers.
6. Access to investors and experience in providing financial advice for further financing: Private equity firms often have extensive networks and can help companies raise additional capital.
7. Extensive international network and a wide range of business contacts within the industry: Private equity companies can help companies to establish valuable business contacts.
8. Source of ideas: Private equity companies can bring new ideas and perspectives to a company.
9. No interest and amortisation payments at the beginning of the investment: This can reduce the financial burden on the company in the early stages of the investment.
10. Large amounts of funding: Private equity can provide access to large amounts of capital that may not otherwise be available.
11. Above average returns: Investing in private equity allows the investor opportunities for above average returns.

However, it is important to note that private equity investments also entail risks and are not suitable for every company.