Investing Strategies of Private Equity Firms


Post the Second World War, there has been many shifts and fluctuations in the economy. The only phenomenon that initiated back in the early days of twentieth century and has come all the way to rule in the market is private equity. Still doubted by many and adapted by others, this sector has significance in balancing the highs and lows of the economies of many nations.

The phenomenon is simple at its core; it involves investment firms buying out companies failing to gain financial success yet have scope to obtain the same when given the right guidance. The private equity then develops the company to a level of success, thereby which it sells off the invested firm with promising profit.

Not every company is a worthy opportunity for investment and potential return. A private equity firm must look for some essential factors in the interested business before acquiring it.

  • Steady cash flow: since major private equities while acquiring a small or middle enterprise invest fifty percent of their cash while the remaining is the debt. Repaying it its every monthly installment with interests is quite essential to keep the bank happy. As these equity firms acquire companies very often they need to be on healthy terms with the banks. Profit over the debt and repayment is substantial for the equity firms. Therefore, to fulfill both the agendas, the company to acquire should be one with if not a profitable but at least a stable and steady cash flow. The acquiring firm would then be able to focus on improving the cash flow by developing business strategies.
  • Potential to grow: it is needless to finance in a company that portrays no characteristic of any futuristic growth. It has been a trend in the market with private equity firms investing in strong companies that have already started making their mark. There is one person who disregards this idea, rather claims of financing in underperforming companies. Marc Leder, the Co-Chief executive Officer of Sun Capital Partners Inc. and this company, represents together invest in challenging companies that have not been able to have a strong foothold or entry into the main market. If the poorly doing business is struggling due to lack of finance but has potential to grow, and has unique and demanding characteristics the investor makes sure to give them a chance.
  • A value creating company structure: since the main criterion of the investing private equity firm would be to sell the acquired firm in the course of few years, the aim would be sell it at the best price. The company should then have attractive and valuable assets to attract future buyers. These value-adding factors could be real estate properties, valuable vehicles, machinery, equipment, and other such assets.

Once acquired the development and consistent growth is the responsibility of the private equity firms. Marc Leder with his more than two decades of experience emphasizes on improving the management team and giving the company a suitable leader to lead it towards the target.

Emilo Jesaya

The author Emilo Jesaya

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