Private equity is an asset class consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange.
A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor. Each of these categories of investor has its own set of goals, preferences and investment strategies; however, all provide working capital to a target company to nurture expansion, new-product development, or restructuring of the company’s operations, management, or ownership.
The strategies private equity firms may use are as follows:
- Leveraged buyout (making equity investments as part of a transaction in which a company, business unit or business assets is acquired from the current shareholders typically with the use of financial leverage)
- Growth capital (equity investments, most often minority investments, in relatively mature companies that are looking for capital to expand or restructure operations, enter new markets or finance a major acquisition without a change of control of the business)
- Mezzanine capital (subordinated debt or preferred equity securities that often represent the most junior portion of a company's capital structure that is senior to the company's common equity, often used by private equity investors to reduce the amount of equity capital required to finance a leveraged buyout or major expansion)
- Venture capital (equity investments made, typically in less mature companies, for the launch of a seed or start-up company, early stage development, or expansion of a business)
- Distressed and special situations (eferring to investments in equity or debt securities of financially stressed companies)
- Secondaries (refer to investments made in existing private equity assets)
Source: Bain & Company PE Report 2016