What is the Private Equity?

What is the Private Equity?

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In Evolutiza Lawyers & Tax Advisors we love companies, and we love them to be informed and to know all their possibilities. After some articles about M&A, in this post we are going to delve into an invest operation that involve so much risk as yield it could mean.

We call Private equity to an investment in which a big company invests on a smaller one, generally unlisted. The big enterprise will control the other by the ownership of a high percent of the company or many shares of it. The aim of the Private Equity is small companies with a huge growth potential, which will suffer transformation processes to get value added.

The negotiation is carried out before investing, and it is the most decisive point in this operation, because it will delimit the investor’s action spectrum, or the payment methods to get the property.

On the other hand, the investment on unlisted companies is usually intended for selling the purchased rights, with their capital gains which emanate from transformations previously mentioned.  There are three methods to leave the companies:

  • Initial Public Offering (IPO).
  • Purchasing the company to other Private Equity.
  • General selling operation, directed towards investment groups, other companies in the sector,…

Among the advantages of Private Equity, we find that they have a good yield in the long term, above stock indexes. We should not overlook that the European GDP is generated by unlisted company for the most part. In addition, private equity tries to avoid losing any investment, and it isn’t linked to stock markets.

Finally, among its disadvantages, we can include that they are long-term investment and they require many resources in comparison to investing in the stock market.

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