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What is an equity firm?

Equity firm

What is an equity firm? Equity firms make investments in the private equity of a number of companies through a variety of investment strategies. Such firms are not listed and therefore do not trade their shares publicly. These firms often use their own capital or capital raised from investors to take companies private with the aim of running them better and later taking them public or selling them at a profit.

Key takeaways:

  • An equity firm is a type of financial institution that invests in private companies with the aim of earning high returns on investment.

  • Equity firms can provide capital to companies in various forms, including equity investments, loans, and mezzanine financing.

  • Equity firms typically target companies with strong growth potential, high-quality management teams, and a clear path to profitability.

  • Equity firms can invest in a range of industries and sectors, including technology, healthcare, and energy.

Where have you heard about equity firms?

Private equity firms are often behind the buyouts of big companies. Many of these companies are failing to meet performance targets. The equity firm often helps manage them before they buy them out and sell them on.

What you need to know about equity firms

They often use debt to buy out companies, paying it off usually within a number of years, after the company has been sold on. To make companies more profitable and valuable, they often use techniques like laying off workers and closing down unprofitable sections of the company. These firms can make money even if they sell at a loss, as they charge a large set fee as well as taking a cut of any profit.

The largest private equity firms include The Carlyle Group, Goldman Sachs Principal Investment Group and The Blackstone Group.

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