Business, Legal & Accounting Glossary
Private equity is money invested in companies that are not publicly traded on a stock exchange or that is invested as part of buyouts of publicly traded companies in order to make them private companies. Among the most common investment strategies in private equity include leveraged buyouts (LBO), venture capital, growth capital, distressed investments and mezzanine capital. Many times these investments are short-term in nature.
Private Equity is investment funds arranged privately without the need for a publically traded stock or bond issue.
Various large investors have sizeable portfolios and constantly seek suitable new investments. Businesses in need of capital approach such investors in an effort to work out a suitable deal. Private equity implies a sale of stock or preferred stock, but a variety of arrangements are possible. Venture capitalists are firms that specialize in investing in new start-up companies in the early stages before their product or service becomes successful or well known. They often take an equity position for their investment giving them shares in the company before it goes public. Often they are issued restricted shares which cannot be sold to the public. Once the company is large enough and successful enough to “go public” the company will do an initial public offering (IPO) of common stock to the public. Then those owning shares may sell them collecting their profits.
Private equity has been in the news recently in that banks who found their reserves depleted in the recent subprime mortgage debacle were able to attract new capital through private placements. Large international investors were reported to be the buyers. The new capital brought with it the issue of large numbers of new shares. That dilutes the voting power and earnings per share of existing common stockholders. Existing companies are likely to do private placements of common stock only in special situations. They are common for start-ups.
Bond issue
Common stock
Earnings per share
Equity
Go public
Initial public offering
IPO
Portfolio
Preferred stock
Private placement
Restricted share
Start-up company
Stock
Stockholder
Subprime mortgage debacle
Venture capitalist
Voting power
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This glossary post was last updated: 29th November, 2021 | 0 Views.