Private equity is a source of investment capital from high net worth individuals and institutions for the purpose of investing and acquiring equity ownership in companies. Partners at private-equity firms raise funds and manage these monies to yield favorable returns for their shareholder clients, typically with an investment horizon between four and seven years.
These funds can be used in purchasing shares of private companies, or in public companies that eventually become delisted from public stock exchanges under go-private deals.
Transaction Support and Portfolio Oversight
There are two critical functions within private-equity firms:
• deal origination/transaction execution
• portfolio oversight
- Deal origination involves creating, maintaining and developing relationships with mergers and acquisitions (M&A) intermediaries, investment banks and similar transaction professionals to secure both high-quantity and high-quality deal flow. Deal flow refers to prospective acquisition candidates referred to private-equity professionals for investment review. Some firms hire internal staff to proactively identify and reach out to company owners to generate transaction leads. In a competitive M&A landscape, sourcing proprietary deals can help ensure that the funds raised are successfully deployed and invested.
- The second important function of private-equity professionals involves oversight and support of the firm’s various portfolio companies and their management team. Among other support work, they can walk management through best practices in strategic planning and financial management. Additionally, they can help institutionalize new accounting, procurement and IT systems to increase the value of their investment.