The term Private Equity is one that many of us have heard at some point, especially in recent years. But the term tends to cause some confusion as to what it really means. In this article we will go over some of the fundamental principles behind this, as well as the variety of opinions that have been formed, because the private equity process is sometimes controversial.

Private equity firms basically find firms to buy with a long- or medium-term vision of making them profitable once again. The art of private equity is the ability to identify companies that have great potential, but have not yet realized that potential. The idea is to find the quickest route to profitability, before selling the business for a substantial profit.

Private equity firms obtain their capital from private sources, as opposed to public ones. These sources can be wealthy people or pension funds, etc. The whole process is centered around the idea that profits should be made quickly and general rewards are enjoyed as quickly as possible.

Most governments around the world, as well as the British government, believe that private equity firms contribute greatly to the British economy, improving market discipline and generally making companies much more competitive. . Since 1983, the industry has invested over £ 80 billion in approximately 29,500 UK companies.

The process is sometimes criticized in some quarters as it is seen as unnecessarily harsh on bankrupt companies. In many cases, company assets will be sold regardless of the effects on the workforce. Sometimes called ‘asset dispossession’, it can result in many layoffs, which obviously cause a lot of hardship in the families of associated workers and have knock-on effects for the entire community.

Another criticism is that many of these important decisions are made behind closed doors without any dialogue between many of the parties involved.

Companies like AA and Birdseye have been subject to private equity firms and, as such, both have had what some consider tough decisions regarding them. This essentially means job losses, the cold side of modern capitalism.

Arguably, these companies would not survive without some form of large-scale reinvestment and reinvestment, and many would argue that they simply accelerate the ill effects of a company’s condition and propel it toward profitability more quickly. Ultimately, they are a reminder that everything is done for the good of the profit margin and not for the good of the worker.