Private Equity

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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) ...
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