What is "private equity"?
Private equity is an asset class or investment vehicle in which the investor purchases all or part of a company's equity or stock and debt or obligations, using capital either to assist in the expansion, develop new initiatives, continue profitable initiatives, restructure the company to improve profitability, or improve the value of the company for later sale or merger.
What else is private equity?
As the term implies, there is a private component to the words "private equity." But there are many cases in which private equity firms may acquire part or all of a public company, take the company private, and even sell shares and ultimately make the company public again. Normally this type of activity is but one of a number of strategies of private equity firms decide upon at the onset as a way to create liquidity from a very illiquid investment.
What is "private capital"?
Private capital is used to support private equity investments. Since private equity may tie up capital used to fund an acquisition for many months or years, experts generally assert that it is a highly illiquid investment strategy. It may take a very long time for private equity investors to earn back their principal or receive distributions on the profit generated by the target company.
What is "private" about private equity investments?
Private equity investments involve using a variety of sources of private capital from other investors or groups of investors with the intent of acquiring a notable percentage of a privately held (not publicly traded) or publicly held company.
What is a "leveraged buyout"?
A leveraged buyout is one form of private equity, whereby investors may come together and use a percentage of the target company's current cash flow in order to obtain loans to acquire the target company at an agreed-upon valuation. By working with the current management of the company, the leveraged buyout private equity investor may turn around the target company and assist the company to realize its full profitable potential.