THE ROLE OF PRIVATE EQUITY FIRMS

Presented by: Rizwan Abubakar Student ID: 1753603 MBA (Finance) Dublin Business School

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

Classification of Private Equity Firms

The main types of private equity firms include independent private equity firm Captive private equity firm and Semi-Captive private equity firm.

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

Famous independent private equity firms

Texas Pacific Group, Apax Partners, Bain Capital and Kohlberg Kravis Roberts.

Captive private equity firms

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

Semi captive private equity firms

These are the firms who raise capital from both the sources i.e. from outside sources as well as from their shareholders. Example of semi captive private equity firms is EQT

How Firms Operate?

Private equity firms are financial sponsors who raise the funds for the company. The firms receive a management fee for the services 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

ROLE OF PRIVATE EQUITY FIRMS

Private equity firms play an essential role in the financial structuring of an organization and hence in the development of the organization The most important role that they play is that they arrange capital for the operations of business. Economic development of a nation

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 the funding activities of the companies and increased the importance of private equity firms.

STRATEGIES USED BY PRIVATE EQUITY FIRMS

LBO: Leveraged buyout is simply defined as acquisition of a company using a significant amount 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.

Venture Capital: In this a private investor invests his money in form of shares rather than loans. This kind of investment is associated with the risk of future performance of the company and hence the investor wants higher rate of return. In UK alone there are more than 100 venture capital firms today (Riley 2012).

 Growth Capital: Growth capital is nothing but a minority investment in a company which is looking for expansion of its business without changing the controlling stake of the organization.

 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.

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 the development of the business and economy.

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