So, just how big is private equity? Pretty damn big.
If you are a regular reader of any financial media outlet, then you’ve no doubt seen mentions of private equity (PE) firms. Maybe it’s because a struggling company got taken private, like Toys “R” Us in 2005, or a major investment (or payout) some private equity group scored through venture or growth capital.
It’s hard to overestimate the size and scope of private equity in today’s markets. To demonstrate the impact of PE, below is a visual that breaks down the funds raised by the top 25 firms over the last five years.
How Private Equity Firms Operate
First, we need to differentiate between private equity and other forms of investment.
A PE firm makes investments and provides financial backing to startups and non-public companies (or public companies that are being taken private).
Each firm raises a PE fund by pooling capital from investors, which it then uses to carry out transactions such as leveraged buyouts, venture and growth capital, distressed investments, and mezzanine capital.
Unlike other investment firms such as hedge funds, private equity firms take a direct role in managing their assets. In order to maximize value, that can mean asset stripping, lay-offs, and other significant restructuring.
Traditionally, PE investments are held on a longer-term basis, with the goal of maximizing the target company’s value through an IPO, merger, recapitalization, or sale.
Over the years, there have been some very high-profile private equity deals – KKR’s $31.1 billion takeover of food and tobacco conglomerate RJR Nabisco in 1989, and Blackstone’s $26 billion buyout of Hilton Hotels Corporation in 2007 – just to name a couple.
What’s even more interesting? As large as these PE firms have gotten, they still pale in comparison to the largest fund companies, investment banks, and asset managers in the world.
Source: Visual Capitalist