The Role of Private Equity Firms - Rizwan

7/28/2019 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

The Role of Private Equity Firms - Rizwan

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