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Private equity

From Wikipedia, the free encyclopedia

Private equity can be broadly defined to include the following different forms of investment:

1. Leveraged Buyout: Leveraged buyout (LBO) refers to the purchase of all or most of a company or a business unit by using equity from a small group of investors in combination with a significant amount of debt. The targets of LBOs are typically mature companies that generate strong operating cash flow.

1. Growth Capital: Growth capital typically refers to minority equity investments in mature companies that need capital to expand or restructure operations, finance an acquisition, or enter a new market, without a change of control of the company.

1. Mezzanine Capital: Mezzanine capital refers to an investment in subordinated debt or preferred stock of a company, without taking voting control of the company. Often these securities have attached warrants or conversion rights into common stock.

1. Venture Capital: Venture capital refers to equity investments in less mature non-public companies to fund the launch, early development, or expansion of a business.

Although private equity can be considered to include all four of these investment activities, it is common for private equity to be the principal descriptor for LBO activity. Venture capital, growth capital, and mezzanine capital are each considered a separate investment strategy, although some large private equity firms participate in all four investment areas.