Private Equity

The term “Private Equity” refers to a specific type of long term investment. It usually involves acquisition of a significant stake in a private company. Typical investors in Private Equity funds are pension funds, endowment funds, asset managers, sovereign wealth funds, family offices and development institutions. A private equity firm invests into the companies with high value growth potential. The typical investment period lasts between three to seven years.

There are several types of private equity transactions. Typical forms include growth capital investments, where private equity funds acquire a significant ownership in a fast-growing private company; buy-out investments where private equity funds acquire, usually with additional debt raised, a controlling ownership in a larger and more established enterprise. There are also venture capital type Investments into early-stage promising companies, and various special situations investments. Elbrus Capital Funds are active in growth capital and buy-out transactions.

In contrast to many other forms of investments, private equity firms are much more interested in the long-term improvement of the business performance of their portfolio companies. Therefore, they put in a considerable amount of time and effort to support and develop their portfolio companies.

These unique features make private equity highly popular among both investors and the companies. In 2020, private equity firms globally raised US$500 billion from investors and invested US$1,150 billion into their portfolio companies. Overall, private equity firms had around US$5 trillion of assets under management as of end 2020.

Key benefits of partnership with a private equity fund

Source of capital

The company or its shareholders get access to equity financing in a rather short timeframe (for example, compared to IPO, which takes from 6 months to a few years to prepare). Private equity financing does not require the company to pay interest and principal repayments, which is beneficial for young and fast-growing companies. In addition, the deal and its terms can remain confidential (as opposed to IPO or debt financing), and extra debt financing opportunities for the company may appear on the back of the increased equity capital.

Seal of proof / image benefits

Private equity investment in a company is viewed by its partners, counterparts and clients positively, as recognizing the strength of its management and shareholders, the stability of the business, the proof of the business model — “… If highly professional financial experts gave money to the company, that company can be trusted…”

Maintaining operational control over the company

In many cases, depending on circumstances, private equity funds acquire minority stakes, which leaves operational control in the hands of the target’s founders and other shareholders.

Expertise / independent view / value adding partners

Private equity funds are involved in the optimization of business processes, restructuring (legal, tax, operational), industry consolidation and expansion by acquisition of other players. The funds can help with growth strategy, raising financing and tapping capital markets (for example IPO, Eurobonds, credit notes).