Topic: Outline the Arguments for and Against Private Equity Investment Name Professor Institution Course Date Private Equity Private equity is a kind of investment whereby investors make direct investments into private companies or completely buyouts of publicly listed companies resulting in their delisting from the stock exchange…
120). In most cases, private equity is driven by the opportunity to earn high returns from a company. Private equity funds mainly come from the private market but private equity firms can invest the funds in both the public and private companies. It is important to note that when the investment is made in a public company, the company becomes private because private investors take control of the company they have invested their money. The market for private equity has evolved significantly in the past one or two decades. This is driven by the fact that a majority of investors have identified good opportunities that reward very high returns in the private equity market. Research studies reckon that the number of expensive buyouts has been increasing every year with investors increasing the size of their investments in the private equity market. The growth of the private equity market has led to a number of concerns regarding its sustainability in the long run. However, one debate that has continued to dominate the financial market is whether private equity is a desirable investment or not. This paper sets to discuss the pros and cons associated with private equity in terms of improving company performance and benefiting the economy. Pros (1) Improving Company Performance The performance of a company is determined by a number of factors including professionalism and the use of technology. This therefore implies that a successful organization should have the best employees in terms of professionalism and also posses the most modern technologies. It is difficult for an organization to acquire the two in a situation where money is a constraint and this is where private equity comes to play an important role. Private equity ensures that investors acquire a company and place it among their portfolio. This is followed by the investors injecting funds into the operations of the company which brings along with it the concept of professionalism. Whenever an organization has been acquired by private investors, they tend to bring new practices and this includes new people and business experience. This is motivated by the fact that private investors are driven by the desire to record very high returns from their investment into an acquired company. They would therefore spend a lot of capital in acquiring competent managers that will record high returns. When a company sales a portion of its shareholding to private investors, there results in the injection of funds which eventually improves cash reserves (Gopalakrishnan, Scillitoe, & Santoro, M., 2008, p. 1356). The company is therefore in a good position to use the invested funds to accelerate its development projects. A case in point is the takeover of Sicomed by Zentiva. Sicomed is located in Romania whereas Zentiva is located in Czech Republic. There are a number of advantages resulting from the private acquisition of Sicomed by Zentiva. The main advantage of the private equity is that there was restructuring of and the redevelopment of the technological infrastructure of Sicomed. There was also the restructuring and redesigning of the company’s working environment starting from the management level down to the subordinate level. This can be viewed as a complete overhaul of the organizational structure of Sicomed. Sicomed used the private equity funds in acquiring new lines of production that replaced the old ones and this ...
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This research will begin with the explanation of leverage buyout. An organization is often taken over by a particular firm involved in investment activities. These firms use a comparatively tiny portion of equity and a comparatively large portion of outside debt financing. This type of activity is known as leverage buyout.
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Private Equity Funds.
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Proceeds are shared approximately equally between the entrepreneur and the venture capitalist; the entrepreneur makes $1.75 million and VC loses $1.25 million. The venture capital fund’s payoff will be $1.75 million.
c) The venture capital fund’s
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