Private Equity

AAA

DEFINITION of 'Private Equity'

Equity capital that is not quoted on a public exchange. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a delisting of public equity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.

The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company.

INVESTOPEDIA EXPLAINS 'Private Equity'

The size of the private equity market has grown steadily since the 1970s. Private equity firms will sometimes pool funds together to take very large public companies private. Many private equity firms conduct what are known as leveraged buyouts (LBOs), where large amounts of debt are issued to fund a large purchase. Private equity firms will then try to improve the financial results and prospects of the company in the hope of reselling the company to another firm or cashing out via an IPO.

RELATED TERMS
  1. Distribution Waterfall

    The order in which a private equity fund makes distributions. ...
  2. Repackaging

    When a private equity firm takes a public firm private by purchasing ...
  3. Club Deal

    A private equity buyout or the assumption of a controlling interest ...
  4. Leveraged Buyout - LBO

    The acquisition of another company using a significant amount ...
  5. Stockholders' Equity

    The portion of the balance sheet that represents the capital ...
  6. Private Purchase

    A situation in which an investor (either individual or institutional) ...
Related Articles
  1. Investing Basics

    What Is Private Equity?

    This investment vehicle attracts wealthy investors to increase the value of portfolio companies.
  2. Mutual Funds & ETFs

    Learn The Lingo Of Private Equity Investing

    Because of the non-public nature of private equity, it can be difficult to the learn the lingo. We break it down here.
  3. Mutual Funds & ETFs

    Private Equity A Trendsetter For Stocks

    In this article, we'll show you how private equity sets the trend for stocks everywhere.
  4. Mutual Funds & ETFs

    How To Invest In Private Equity

    Private Equity might be a pricey investment, but returns are on the rise and the payoff could be big.
  5. Fundamental Analysis

    Key Players In Mergers And Acquisitions

    Strategic acquisition is becoming a part of doing business. Discover the different types of investor groups involved.
  6. Options & Futures

    A New Approach To Equity Compensation

    The new financial accounting standard known as FAS 123R could take a bite out of your portfolio. Find out why here.
  7. Home & Auto

    4 Types Of Home Renovation: Which Ones Boost Value?

    You think your updated house looks great, but potential buyers may not feel the same way.
  8. Options & Futures

    Compensation Myths: Burger Flipper Vs. Investment Banker

    Though these two jobs are perceived as being opposites, the compensation can be quite comparable.
  9. Fundamental Analysis

    Accretion / Dilution Analysis: A Merger Mystery

    This analysis tool is an effective way to value mergers and acquisitions. The deal's on the table, but should you sign the papers?
  10. Investing

    What is a debt/equity swap?

    Occasionally, a company will need to undergo some financial restructuring to better position itself for long term success. One possible way to achieve this goal is to issue a debt/equity or an ...

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center