How the Global Economy Relies on Private Equity Firms

posted by Chris Valentine

Corporate raiders, thankfully, are a thing of the past. Today, we have private equity firms, managed by people like Gregory Lindae, and they are no longer interested in tearing a company to shreds and selling its individual pieces off. They are interested in making companies successful, so that they can see a return on their investment.

How Do Private Equity Firms Operate?

What private equity firms do today, is make sure that companies they work with are restructured so that they can achieve sustainable growth. They do not do anything to reduces the asset base or earnings of a company, not even for a short period of time, because the market is unforgiving. Instead, they rebuild foundations, reduce the fat, and push a company towards growth.

The main focus of a private equity firm is to get management right. They identify strategic acquisitions and ensure the core businesses of their target companies is suitable. As such, they are no longer a hostile entity to be feared, but rather a best friend.

Take, for instance, the Sears example. Everybody all over the world has heard of Sears. Few, however, know that they nearly lost it all, until private equity investors came in. With their help, Sears acquired K-Mart and once again took over the world of retail. Indeed, Sears is successful thanks to private equity.

At the same time, it is important to understand that a private equity investor is not passive. Their goal, at the end of the day, is to create a profit. They do this through their experience, their contacts, their portfolio companies, their chosen management team, and their stringent exit strategies. They see a company that is fractured, where investors are jumping ship, and pick it back up.

How to Get into the Private Equity Trend

Because private equity is so successful, and people make millions in it (although they lose millions as well), many people want to get their foot in the door. This is hard, however, not in the least because private equity firms only accept accredited investors. This often means that they have to have several hundred thousand dollars just to be considered. Should they not have this, they will have to look at other ways to invest.

It is this very requirement for high sums of money that makes private equity so lucrative, but also so exclusive. People like Gregory Lindae generally only work with high net worth individuals, and there are not many of those around. On the other hand, this also means that they have a lot of responsibility on their shoulders, because no matter how rich someone is, several hundred thousand dollars can never be classed as “small change”. Not just that, their investment decisions actually drive the economy of the country. Without private equity, a wealth of businesses would go bankrupt, instead of rising from the ashes to become bigger and better than ever before, bringing with them job opportunities and economic growth.

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