PRIVATE EQUITY INVESTMENT

Private Equity Investment

Private Equity Investment

Introduction

Private equity firms emerged in the 1970's during the recession; they were formed by venture capitalists focused on improving established underperforming companies with the skills of the venture capitalist. Private equity firms reviews organizations on two main criteria; underperforming company and a well developed capital market. Underperforming companies are companies that have a lack of focus on value creation or inadequate management to increase the company's operations. A well developed capital market in the public stock or trades market provides an opportunity for the company to be resold and an increase in value can be obtained by the private equity firm. The core of private equity's success, growth, and high rates of return is their standard practice of buying businesses, transitioning a series of rapid performance improvements, and then implementing an exit strategy for each business. It is presumed the financial benefits of the private equity firms is through their financial structuring of the acquired companies; in actuality, the returns from the private equity firms comes from performance improvement. They focus on increasing the value of the organizations they acquire prior to selling them, providing them a profit. They create value by moving capital, labor, and technology to more valued uses. They offer a competitive alternative and provide innovative organizational, strategic, and financial ideas to the organizations they acquire. Therefore, all the issues and aspects related to private equity investment will be discussed in detail.

In view of this, the primary research question the research will seek to answer is as follows: How attractive will the SME private equity sector be in the wake of the global financial crisis as far as investors are concerned? As a means of addressing the above question, the following three objectives have been identified:

To determine the impact of the global financial crisis upon the European financial sector, with specific focus upon the private equity sector- this objective will aid in developing an understanding as to the current state of the sector as well as seeking to lay the foundations of the subsequent research.

To examine the extent to which the Private equity sector has weathered the financial crisis: the second objective will look specifically at the private equity industry as a means of gaining an insight into any legislation and changes within the industry and how this may affect the future.

To evaluate the growth of the sector and the attractiveness as far as future investment is concerned: this objective will determine the place of SMEs within the said market and geographical area and evaluate the future strength of the industry.

Literature Review

Private Equity buyouts of firms in the U.S. and European counties have identified that the performance of the companies that were acquired improved from one year prior to the acquisition, up to three years afterwards. The improvements were identified to be based on improved processes and measurements conducted by the new owners or managers' ability to rationalize production through outsourcing intermediate goods and ...