The Role of Private Equity Firms - Rizwan
Transcript of The Role of Private Equity Firms - Rizwan
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Presented by: Rizwan Abubakar
Student ID: 1753603
MBA (Finance)
Dublin Business School
THE ROLE OF PRIVATE
EQUITY FIRMS
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Introduction Equity represents the ownership
value in a particular business.
Equity is divided into two classes:private equity and public equity.
Public equity is the equity traded
on the stock exchange and public
can participate in the trading.
Private equity is the asset class
which contains equity securities
and is not traded publically
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Classification of Private Equity Firms
The main types of private
equity firms includeindependent private equity
firm
Captive private equity firm
and
Semi-Captive private equity
firm.
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Independent private equity firms Independent private equity
firms work independently.
Bender and Ward (2002)
Independent firms raising
capital includes
Government,
Wealthy individuals,
Large corporations,
Banks and pension funds. etc
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Famous independent
private equity firms
Texas Pacific Group,
Apax Partners, Bain Capital and Kohlberg Kravis Roberts.
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Firms who raise capital from their parent
companies or from their primary
shareholders
Firms have direct control over funds
Famous captive private equity firms include
Barclays private equity,
Morgan Stanley Capital partners and
Allianz private equity partner
Captive private equity firms
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Semi captive private equity firms
These are the firms who raise
capital from both the sources i.e.from outside sources as well asfrom their shareholders.
Example of semi captive privateequity firms is EQT
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Private equity firms are financial sponsors
who raise the funds for the company.
The firms receive a management fee for theservices they provide as well as share in the
profits of the organizations.
They acquire a stake in the ownership of the
organization and then look for maximizing
the value of the investment. (Way 2013). Target underdogs
How Firms Operate?
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Private equity firms play an essential role in
the financial structuring of an organization
and hence in the development of theorganization
The most important role that they play is
that they arrange capital for the operations
of business.
Economic development of a nation
ROLE OF PRIVATE EQUITY FIRMS
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SARBANES
OXLEY ACT AND PRIVATE EQUITY FIRMS
Sarbanes Oxley Act has a great significance in
the role played by the private equity firms
Sarbanes Oxley Act 2002 has restricted thefunding activities of the companies and increasedthe importance of private equity firms.
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STRATEGIES USED BY PRIVATE EQUITY FIRMS
LBO: Leveraged buyout is simply
defined as acquisition of a
company using a significantamount of borrowed money.
This money is borrowed in terms
of bonds and loans.
Private equity firms use very
little amount of money in
acquisition and rest is borrowed.
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Venture Capital: In this a privateinvestor invests his money in form ofshares rather than loans.
This kind of investment is associated
with the risk of future performance ofthe company and hence the investorwants higher rate of return.
In UK alone there are more than 100venture capital firms today (Riley2012).
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Growth Capital: Growth capital is
nothing but a minority investmentin a company which is looking for
expansion of its business without
changing the controlling stake ofthe organization.
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Distressed Investment: Distressed investment
is simply providing funding facilities to the
companies which are in financial stress.
It includes two strategies loan to own and
turnaround strategies.
Thus private equity firms help the
organizations in financial problems.
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CONCLUSION Private equity plays an important role in ensuring the
growth of the business and hence in the development
of the economy. The private equity firms provide financial help to the
companies which are underperforming and improve to
the situation of these companies
Private equity funds will aid in contributing to thedevelopment of the business and economy.
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THANK YOU