What is Private Equity Financing?

Private Equity Financing

Private Equity Financing

Private equity financing is where funds are made available to private companies over the long term. This can be accredited investors or institutional investors which are providing funds to a company which is either struggling or it can be in the form of a buy-out. Generally it is to help generate finances for a growing company which otherwise does not have enough profit to pursue expansions and growth on their own. These funds can provide the financial stability that a company needs to have while they are developing and progressing in the business world. Many times private equity firms, such as Effi Enterprises, come together to fund a leveraged buyout. (LBO) Through this type of funding companies can make larger purchases that might not otherwise be possible. The private equity firms then provide support to help improve the company’s financial circumstances in the hope that the company can be resold to another firm or be cashed out through an IPO.

Effi Enterprises is a consulting business which offers private equity financing to companies which are involved in the development and implementation of high tech medical equipment. They are a private equity firm which provides financing for emerging businesses in this particular business sector. Different firms may participate in particular types of companies and they specialize in helping increase the company’s valuation by assisting in the managerial aspects of the company. Effi Enterprises and other such businesses which provide private equity financing help a company refocus strategies, reduce cost structures, and strengthen the company’s leadership. Sometimes these strategies may mean that some parts of the company are sold off so that other parts can thrive. Firms such as Effi Enterprises can provide financial backing through private equity financing and business expertise to help ensure the company’s growth and success.

A real-life example of how private equity financing works is the Warner Music Group. The music label was purchased by a group of private investors. They purchased the company for $2.6 billion. Through much planning and managerial changes they corporately made operational cuts and just about one year later the company was able to go public and its market cap was over $3 billion. The interaction increased the company’s valuation as well as provided the private equity investors a decent return.

One thing to remember about private equity financing options is that it is not always meant to be a quick fix. It is a way to provide financial stability for a length of time. The contributors function in a managerial capacity which offers the companies a wealth of business expertise. One of the areas that companies such as Effi Enterprises provide when engaged in private equity financing is hands-on managerial experience and leadership. They can bring many useful business and marketing strategies to the table which can help increase the valuation of the company as well as provide funding for expansion and growth. They can offer advice on divestiture strategies and prepare financial projections and direction for the company. While the funding provided in private equity financing is beneficial to the establishment and growth of a company the business expertise from interested investors can be invaluable.

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About Efraim Landa

My name is Efraim Landa I am an entrepreneur and an expert in venture capital. I am the co founder of Effi Enterprises, a venture capital firm as well as the co founder and CEO of Gluco Vista, a company that is in the process of developing a non invasive glucose meter for those with diabetes.

Posted on May 22, 2012, in Business financing, private equity, Private Equity Financing, VC financing and tagged , , , . Bookmark the permalink. 1 Comment.

  1. This post was very informative and made a lot of great points. The Warner Music Group example is extremely interesting and perfectly illustrates how private equity financing works.

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