Private Equity Info Blog

Private equity investors employ various transaction strategies to acquire and grow profitable portfolio companies. The categories that www.PrivateEquityInfo.com tracks - acquisition capital, buyouts, consolidations, corporate divestitures, ESOPs, growth capital, recapitalization, shareholder liquidity and turnarounds - are described below:

Acquisition Capital - capital provided to operating companies intended for growth via acquisitions. This capital is normally provided for a specific, identified acquisition target.

Buyouts - in a leveraged buyout (LBO) or management buyout (MBO), a private equity firm typically acquires a majority stake (if not 100%) in an operating company and retains a control position.

Consolidations (industry roll-ups) - within fragmented industries, private equity firms acquire multiple companies to consolidate into a larger entity.  Normally, the private equity firm will first acquire the “platform” company and then acquire additional, smaller companies as add-on investments.

Corporate Divestitures - investment in a non-core division of a larger corporate entity. In this case, the corporation is spinning off a division to a private equity firm.

ESOP - Employee Stock Ownership Plans are mechanisms to transfer corporate ownership to its employees in whole or in part. Private equity firms sometimes contribute equity capital to finance this ownership transfer.

Growth Capital - refers to the equity investment by a private equity firm specifically to facilitate specific growth initiatives.

Recapitalization - a strategic change in a company’s capital structure usually involving a partial transfer of ownership. A recapitalization often occurs when an owner wishes to cash out of a partial interest in the business (the proverbial “take some chips off the table”). In this case, a private equity firm would provide the equity to pay the owner in exchange for a percentage of ownership.

Shareholder Liquidity - similar to a recapitalization, in that it involves a strategic change in capital structure, but usually with a different intent. With this strategy, a private equity firm provides the company with enough equity to completely “cash out” an owner, typically for family succession planning purposes.

Turnarounds - private equity firms may provide equity with the intent of turning a distressed or special situation company into a financially stable company. Oftentimes, distressed or special situation companies are in default (i.e. bankruptcy) or close to it.

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Private Equity Info (www.PrivateEquityInfo.com) provides a comprehensive database of private equity firms, their investment interests, acquisition criteria, transaction types, portfolio companies and professional biographies.