Equity Growth Capital
LEVERAGED BUYOUTS (LBOs)
Private Equity Real Estate (PERE)
Distressed/ Special Situation Investing
Private Equity (PE) is another source of investment capital that invests in the equity capital of privately held companies, I.e. companies that are not publically traded. Private Equity actually derives from high net worth individuals and institutional investors that acquire equity shares of privately held companies or acquire controlling stake in publically traded companies to make them private, eventually become delisted from public stock exchanges. The PE capital can be used to develop new products and technologies, to expand working capital, to make acquisitions, or strengthen a company’s balance sheet. Now private equity has gained a great amount of influence in today’s financial marketplace.
Private Equity investment strategies
Private equity is an asset class that involves the use of equity securities and sometimes along with debt capital to acquire shares of privately held companies or those of public companies that will eventually be delisted from the public stock exchanges. Based on our wide experience in private equity deal structuring and professional knowledge gained from research studies conducted on PE markets and deals, the following are the private equity strategies that PE investors generally adopt:
1. Growth Capital
Growth capital (also called expansion capital and growth equity) are a type of private equity investments made in relatively mature companies with proven business models that are looking for capital to expand or restructure their operations, add new product line, enter new markets, or finance a significant acquisition without a change in the control of the investee company. Typically, these are minority investments, and companies that take on growth capital are more mature than venture-funded companies. Such companies generate revenue and profits that may not be enough to fund big expansions, acquisitions or other investments. By selling part of the company equity to private equity investor, the primary owner doesn’t have to take on the financial risk alone, but can take out some value and share the risk of growth with partners.
2. Venture Capital
Venture Capital typically involves less mature companies, start-up companies, or companies in early-stage development with little to no track record of profitability. Venture Capital investments usually applied toward new technology, new marketing concepts, or new products that don’t have a proven track record or steady revenue streams yet. Venture Capital is most suited for businesses that face large up-front capital requirements that cannot be financed by alternative sources, such as debt. Venture capital investments are made with the goal of generating outsized returns by identifying and investing in the most promising companies and profiting from a successful exit.
3. Leveraged Buyouts (LBOs)
Leveraged buyouts refers to a strategy when a company borrows a significant amount of capital (from loans and bonds) to acquire another company. The companies involved in LBO transactions are typically mature and generate operating cash flows. Private equity firms make buyout investments when they believe that they can extract value by holding and managing a company for a period of time and exiting the company after significant value has been created. Leveraged buyouts typically utilize debt to finance the buyout, and the firm performing the LBO has to provide a small amount of the financing (typically around 90% of the cost is financed through debt).
The goal of a leveraged buyout is to generate returns on the acquisition that will outweigh the interest paid on the debt. For the firm that’s performing the LBO, this is a way to generate high returns while only risking a small amount of capital. Oftentimes a financial sponsor is involved and the assets of the company being acquired are used as collateral for the debt. Private equity firms will then either (1) sell off parts of the acquired company or (2) use the acquired company’s future cash flows to pay off the debt and then exit at a profit.
4. Mezzanine Financing
While some companies might take on growth capital to finance their expansions, mezzanine financing is an alternate way. Mezzanine financing consists of both debt and equity financing used to finance a company’s expansion. With mezzanine financing, companies take on debt capital that gives the lender the right to convert to an ownership or equity interest in the company if the loan isn’t repaid in a timely manner and in full. Companies that take on mezzanine financing must have an established product and reputation in the industry, a history of profitability, and a viable expansion plan.
Mezzanine Capital is often used by smaller companies unable to access a high yield market. This strategy provides these companies the opportunity to access additional capital – beyond what traditional lenders are willing to provide.
5. Private Equity Real Estate (PERE)
Private equity real estate involves pooling together investor capital to invest in ownership of various real estate properties. Based on the degree of risk involved, PERE uses four common strategies to invest that are: Core, Core Plus, Value Added and Opportunistic.
6. Distressed and Special Situations
Distressed and Special situations funds specifically target companies that need restructuring, turnaround, or are in any other unusual circumstances. Investments typically profit from a change in the company’s valuation as a result of the special situation. Examples of special situations include: a large public company spinning off one of its smaller business units into its own public company, tender offers, mergers and acquisitions, and bankruptcy proceedings. Besides private equity funds, hedge funds also implement this type of investment.
7. Fund of Funds
This type of strategy involves investing in a fund whose primary purpose is to invest in other private equity funds rather than directly in securities, stocks, or bonds. By investing in a fund of funds, investors are granted diversification and the ability to hedge their risk by investing in various fund strategies.
We offer investment advisory services to both private equity investors and to companies seeking equity growth capital.
For Private Equity Investors (GPs, LPs and HNIWs)
We facilitate direct and co-investments in strong and institutional quality private equity investment strategies with highly growing companies across the world. Our selection criteria of a target company is predominantly based on enhanced due diligence, extensive research of targeted market and future growth prospects, which ensure strong risk-adjusted return and long term capital appreciation to our investors. With our extensive market knowledge and experience in deal structuring, we will be able to facilitate direct investing in target companies, covering all the investment strategies that will stand out in your investment portfolio with best in class returns and growth.
For Companies seeking equity capital (Capital Seekers)
If you are seeking equity capital to manage your growth opportunities or if you are looking equity capital to restructuring, turnaround or are in any other unusual circumstances, we can assist you with our private equity advisory services. We have access to a large number of high-quality and diversified private equity funds and limited partners around the world that will help you to meet your growth capital requirements. Our extensive private equity investors will help you to raise capital, whatever your business model would be.
Contact us to know more.