Do you know what private equity firms are? Most people have heard of Sun Capital Partners and Marc Leder, but few know exactly what they do. If you have just entered the financial sector, for instance by setting up your own business, you may be in a situation where understanding what private equity is becomes very important. In very simple terms, private equity firms are financial companies that make and manage investments in privately held companies.
Essentially, someone like Marc Leder will identify a company of interest and report this back to Sun Capital Partners. They will then raise capital that can be invested in the company, using one of several methods. Sun Capital Partners receives capital from its members, and people like Marc Leder are paid through management fees and a percentage of the profits made once their investment pays off.
That Doesn’t Make it Much Clearer…
It can be very important to gain a greater understanding of the work that private equity forms can do. However, to really come to grips with it, you must understand the concept of private equity itself. Understanding this will give you a greater ability to know what you should do before you decide to work with a firm. Unless you truly understand this particular financial construction, you may end up making the wrong investments, to the detriment of your own business.
Simply put, private equity is gained from companies that are not listed on any public stock exchange. They are seen as long term investment plans. Since they aren’t listed, it is very difficult for investors to find buyers. These buyers are the private equity firms, who get their returns by selling, merging, re-capitalizing, or creating a “public offering”.
It is believed that private equity investing first started in the 18th century, when businessmen would look for billionaires who may be interested in a business idea. By the 1970s, private equity investing became a massive industry, which is also when most private equity firms were first founded. From those almost shady and hidden beginnings, private equity is now one of the most popular forms of investments and some people have made millions through it. The money itself comes from wealthy individuals who pool their money together.
Making a profit through private equity firms and private investments can be risky, but if don properly, it can be big as well. This starts by making sure all the supplier payments are organized properly. After this, they must all be carefully watched and the overheads have to be controlled. Then, a good quality control check procedure has to be put in place. Once this is set up, it is time to find the money. Think public sector grants, lease arrangements, banks, family and friends, associates, and so on.
Private equity investment is a long term commitment in which capital is shared. Ultimately, however, it allows companies to grow significantly and sustainably. The returns you get depend on just how successful the company is, which is why there is a vested interest from both sides here.