Private Equity Company - Investment Strategies, Services and Types

Private Equity Company - Investment Strategies, Services and Types

March 01, 2022 Admin
Private Equity Company Private Equity Company in India Private Equity Company in Gurgaon

With a quest to earn, a private equity company in India focuses on multiple areas such as raising capital, sourcing, cost cutting, exit portfolios, and more. Let’s find out more about Private Equity Companies. 


For basic understanding, Private Equity is a type of ownership or interest that is not publicly listed. It (PE) comes from high-net-worth individuals (HNWI) and companies that purchase stakes in private companies or acquire control of public companies with a plan to delist them from stock exchanges. 


Role of Private Equity Company

A Private Equity Company that offers financial backing to private companies. Mostly the investment backing is for startup companies through a variety of associated investment strategies like venture capital, growth capital, and leveraged buyout. The common objective behind the implementation of these strategies is to attain a positive return on investment.


These private equity companies are given management fees periodically, and also given a share in the profits earned from the management of the private equity funds. As direct investment is the prime target of a private equity investment, they need a large capital outlay to attain  a potential controlling level of the private equity company operations. This is the reason why the industry remains dominated by large funds with huge amounts of money.


To achieve the objectives, Private equity funds are mostly engaged in a number of functions to get a decent return on the investment. The private equity company performs due diligence to ensure analysis of the potential companies for acquisition. Also, they provide guidance to the company management in order to support in strategy building, financial management to enhance the company performance. By following these steps, eventual exit can be assured to be profitable.


Services provided by Private Equity Company


1. Raising of Capital

A Private Equity Company contributes in raising capital by acquiring capital commitments from limited partners, namely pension funds, insurance companies, and individuals etc. Also, there is a provision for them to invest their own money. Usually, the limited partners commit to invest a huge amount of capital to qualify for the involvement in the fund.


2. Sourcing, Due Diligence, and Deal Closing

Based on the analysis of potential companies for acquisition, public equity companies take account of things like the industry in which the company operates, type of service the company is involved in, company management, company’s recent financial performance, and possible exit scenarios for the company. The chances to get prospective deals increases due to the partner reputation, effort, and investment professionals network, also via investment banks.


Once the sourcing is complete, due diligence will take its course, to further evaluate the company’s industry, market, business model, risk factors, exit potential, etc. Finally, the negotiation with lawyers will be done constituting final terms. Once the deal is closed, funds are released.


3. Ensure Improvement of Operations and Cost cutting

The private equity companies are involved in multiple activities for building the portfolio of the company, yet they offer support on strategy, financial management, and operations. However, the level of involvement totally depends on the company size and what is at stake. Also, the involvement is determined by the percentage of ownership it holds in the stake, if the percentage is high the indulgence would be high in order to make it a profitable venture. 


4. Sale/Exit Portfolio

To take a company’s portfolio at a decent profitable stage is the end result that a private equity company wants to achieve. And this exit portfolio takes approximately three to seven years, counting from the initial investment. Depending on the strategic situation, the time duration may vary. Valuation of the company during exit is calculated through cost cutting, debt pay off implemented in the funding of the transaction, growth of revenue, optimization of working capital, and selling of the company has to be at a higher price than the price at which it was acquired.


Most exits are processed due to the acquisition by a company or an Initial Public Offering (IPO), as acquisition is the most popular method. Only then, the returns are evaluated and monitored.

Private Equity Company - Investment Strategies, Services and Types

Operation of Private Equity Company

  • Private equity companies in Gurgaon and in various parts of the nation, offer a wide range of investment preferences. Some of these primarily depend on the passive investors, or on the management to grow the company and get returns. From a seller's perspective, this is a typical commoditized approach, therefore, some private equity companies consider themselves as an active investor for the company. 
  • Active private equity companies usually have an extensive contact list of CEOs and CFOs of particular industries that can be helpful in increasing revenue. Also, they are assured experts to revive operational efficiency of the company at different levels. 
  • To compete with the private equity companies, there are top-notch Investment banks who are interested in buying valuable companies and offer financing for competent ones as well. 
  • Some of the big investment-banking entities like Goldman Sachs, JPMorgan Chase, and Citigroup often contribute in the largest deal in the sector.
  • Whereas, in case of private equity companies, the offered funds are limited to accredited investors and they allow a precise number of investors, however, the founder of funds would expect a large stake in the company.

Having said that, there are some large and one of the most prestigious private equity companies that list their shares publicly. For instance, the Blackstone Group was involved in the buyouts of companies, namely, Hilton Hotels and MagicLab. 


Investment Strategies of Private Equity Company


1. Venture Capital

Venture capital is a vertical of private equity that emphasises on the startup and high-risk businesses. 


2. Growth Capital

Mostly offered to mature companies to escalate their growth. This strategy is usually used for expansion in a new market, development of partnerships, acquisitions, capital investment (machines, real estate, etc.), sales and marketing.


3. Real Estate

Real Estate is another promising avenue for raising private equity capital. It involves a group of investors interested in combined investment in the properties. 


4. Mezzanine Financing

This type of investment is typically undertaken by those lending institutions who follow a less conventional working model as it involves both debt and equity and is relatively risky than other investment strategies. 


5. Leverage Buyout

This category has the potential of high rewards. The leveraged buyout goes upto 90% debt and only 10% contribution from their own funds. 


6. Funds of Funds

Funds of Funds, is also known as multi manager investment that is made in private equity funds rather than directly in bonds, stocks, and securities. 



From the above mentioned point, it can be concluded that Best Private Equity Company in India dedicatedly work towards understanding the specific business industry and based on the multiple evaluation factors, determine the scope of the returns for a company and how the returns can be improved by incorporating valuable solutions, offered by the investment experts of Private Equity Companies.

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