Private equity

Private equity covers a range of activities related to making investments in unlisted companies. Private equity investments are often funded by debt, leading either the acquirer or the acquired businesses (or both) to become highly geared. The most noticeable private equity activity from the point of view of other investors is the takeover of underperforming listed companies.

Because private equity stakes are fairly large, private equity investors generally have a significant influence over management and much better access to financial information. This is why a troubled or badly-run business is often worth more to private equity investors than as listed companies.

Stock markets are important to private equity investors as they provide a key exit route. The other obvious alternative is a disposal to a trade buyer (someone else in the same industry).

Most large private equity investments are purchases of established but under-performing companies. More adventurous investments in private companies, such as those in start-ups, are called venture capital.