What is Private Equity, and Why Does it Matter?
Private equity firms are known throughout the business world as being the pinnacles of investment expertise. They attract employees of tremendous talent from across financial, accounting, legal, and other corporate industries. They routinely make huge profits and earn high incomes. Why? What makes them such a productive money source?
The money that these firms invest comes initially from individuals of high income, or from large pension funds. In either case, this way of investing ensures the best possible chance for a high return on the invested funds after they’ve been held for years in portfolio companies. The talent attracted by the firms, and its track record, is usually successful enough to give investors a high degree of confidence that their money will be safe, and that it will grow.
Just as when a real estate investor flips a house by first purchasing a property in distress or otherwise discounted, these firms use their funds to target established but struggling businesses in need of a new direction in order to keep operating. Private equity firms use their funds to purchase these companies and take control of them. This may involve purchasing enough shares of a publicly-traded company to delist it and take it private. They may also try buying out the founders, or a variety of other strategies.
“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” (Dave Ramsey)
While they are part of a portfolio, the firm subjects purchased companies to rigorous and sometimes ruthless analysis to discover opportunities for improvement. In cases where they find none, they liquidate the portfolio company’s assets. They then use the proceeds to help investors recoup their losses. In most cases, though, changes in management and strategies result in renewed profitability. Besides these profits, the streamlining of the portfolio company increases its value. Following a successful turnaround, the firm puts the portfolio company back up for sale, either as a unit, or in the form of a new Initial Public Offering of stocks on the exchanges.
Boomsourcing serves private equity firms with a team of Sales Development Representatives who are ready to drive new sales to portfolio companies, fast. Contact us today to establish a strategy that will make your portfolio company go BOOM!
We also provide other streamlining strategies, such as with our bookkeeping service SyncLedgers, and with our business process outsourcing solutions.