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Driving growth: how private equity investments strengthen American companies14/05/2008. Source: The Private Equity Council.
 The private equity industry is as diverse as the
hundreds of firms that manage private equity
investment funds. But each of these investment
firms has a common goal: seek out companies with
the potential for growth and put in place the capital, talent
and strategy needed to permanently strengthen the company and raise its value. How private equity firms accomplish that objective is the subject of this paper from the Private Equity Council.
At its core, private equity investment is simple: private equity firms establish investment funds that collect capital from investors—known as limited partners, or LPs. The private equity firms themselves—known as general partners, or GPs—use this capital, along with their own equity and funds borrowed from banks and other lenders, to buy companies that they believe could be significantly more successful with the right infusion of capital, talent, and strategy.
Being privately held has its advantages. Managers of private equity-owned companies can adopt a long-term perspective that might be difficult to justify to public shareholders who are concerned that investments in research and development or other long-term projects could lower short-term earnings—and the stock price. Private ownership also focuses company management, owners, and investors on a single objective: maximizing the value of the company.
Private equity investment firms typically own companies for three to five years (although this period can vary anywhere from one to ten years, depending on market conditions and other variables). Eventually, the firms sell some or all of their stake in the company, hoping to realize a gain on the sale as a result of the increased value they have created as owners. The size of the capital gain the firms’ GPs and their limited
partner investors realize is driven by the risk they take and how much value they are able to add to a company. Today, private equity-owned businesses are easy to find across the United States. Well-known names like J. Crew, Dunkin’ Donuts, MGM Studios, General Nutrition Stores, and many others have thrived with the benefit of private equity investments. Private equity is an increasingly important source of capital for the growth and expansion of U.S. firms.
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The Private Equity Council, based in Washington, DC, is an advocacy, communications and research organisation and resource centre established to develop, analyze and distribute information about the private equity industry and its contributions to the national and global economy. PEC members are: Apax Partners; Apollo Global Management LLC; Bain Capital Partners; the Blackstone Group; the Carlyle Group; Hellman and Friedman LLC; Kohlberg Kravis Roberts & Co.; Providence Equity Partners; Silver Lake Partners, THL Partners; and TPG Capital (formerly Texas Pacific Group).www.privateequitycouncil.org.
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