What is Private Equity?
Private equity is is not one of the conventional investment types, such as stocks, bonds and cash and consists of capital that is not listed on a public exchange.
Private equity usually consists of funds and investors that directly invest in private companies (companies which are not publically traded on an exchange), or that participate in buyouts of public companies, resulting in delisting these public companies.
Institutional and retail investors can provide capital for private equity investments, and this capital can be leveraged to finance new technology, make acquisitions, increase working capital, and to make balance sheets more healthy.
Here are some of the most expensive private equity investments.
Keurig Dr Pepper
Keurig Green Mountain, now Keurig Dr Pepper, the PE-backed beverage business known for its avidly popular coffee maker, completed a buyout to purchase soft drink giant Dr Pepper Snapple for more than $21 billion, creating a beverage conglomerate with some $11 billion in annual revenue and putting popular brands such as 7UP, Snapple and Canada Dry under the same private equity umbrella.
This is an example of leveraged buyout. Once this type of deal is finalised the purchased company is moved to the PE balance sheet. This provides some tax benefits. This type of buyout has a number of benefits.
Toshiba memory chip unit
It took more than eight months to complete thanks to a series of regulatory hurdles imposed by the Chinese government, but Bain Capital eventually completed its deal to buy the memory chip unit of Toshiba for 2 trillion yen (about $18 billion). The Boston-based buyout shop teamed up with Apple, Dell, chipmaker SK Hynix and others, with Toshiba retaining a 40% stake in the business.
There are other types of PE-funds, buyouts are just the most common.
Venture capital funding is a unique type of private equity, in which investors (aka angels) provide capital to entrepreneurs.Depending on the stage at which it is provided, venture capital can take several forms.
- Seed financing refers to the capital provided by an investor to scale an idea from a prototype to a product or service.
- Early stage financing can help an entrepreneur grow a company further.
- Series A financing enables them to actively compete in a market or create one.
Real Estate Private Equity:
Real Estate Private Equity: During the post financial crisis in 2008, when the market had crashed the real estate prices, there was a huge surge in this type of funding. Normally areas where PE-Funds are used are commercial real-estate and real-estate investment trusts (REIT).
These deals are only possible with the consultation of private equity lawyers such as Goodwin Law.
These investments are still growing year on year but they require higher minimum capital for investment as compared to other funding categories in private equity.