Lesson 1 of 6 · 14 min
Private equity: buyouts, growth equity and PIPEs
Private equity buys large or controlling stakes in companies outside the public market, then uses control, operating changes and often heavy leverage to raise the company's value before selling it.
In short
- Private capital is funding not raised in public markets or from banks and governments; it covers private equity (ownership) and private debt (loans), so it spans the whole capital structure.
- Main private equity strategies: leveraged buyouts (LBOs), venture capital (VC) and growth capital (minority stakes).
- In an LBO most of the price is borrowed, secured on the target's assets and repaid from its cash flows; a listed target is usually taken private. An MBO keeps the existing managers; an MBI brings in a new team.
- Like public shareholders, private equity owners vote and have a proportional residual claim, but their large stakes give far more direct control, which demands industry-specific expertise.
- Access can be direct (a single asset, sometimes as a co-investment beside a lead sponsor), through a fund, or indirect through a fund of funds.
- A PIPE sells shares or convertibles of a listed company privately to a few investors: fast and cheap to arrange, but dilutive and usually priced at a discount.
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