A private equity company is an investment company that invests in helping companies grow by purchasing stakes. This is different from private investors who buy stock in publicly traded firms, which gives them dividends, but doesn’t give them a direct say in the company’s decisions and operations. Private equity firms invest in a set of companies, called a portfolio, and usually are looking to take over management of these businesses.

They will often buy the company with potential for improvement, and make adjustments to increase efficiency, reduce costs, and increase the company. In certain instances private equity firms utilize the use of debt to purchase and take over a business also known as a leveraged buyout. They then sell the company for a profit and collect management fees from the companies that are part of their portfolio.

This cycle of buying, improving and selling can be lengthy and costly for businesses especially small ones. Many companies are seeking alternative methods of financing that can give them access to working capital without the management fees of an PE company added.

Private equity firms have been able to fight against stereotypes that portray them as squatters of corporate assets, by highlighting their management expertise and examples of successful transformations of their portfolio businesses. But critics, including U.S. Senator Elizabeth Warren, argue that private equity’s focus on making quick profits is detrimental to the long-term value and is detrimental to workers.



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