Private Equity is a way by which companies can be owned and fresh capital can be raised for investment. Companies can be owned by the government, they can be owned by families or entrepreneurs. They may be listed on stock exchanges (Public companies) or, they can be equity firms. Like any other company, equities also may be small or large. Most equity investments are for small to medium enterprises (SMEs). Investment in equity is coming up as a great wealth management strategy for businesses and individuals with a high net worth.
Difference between public companies and private equity-backed companies:
- Public companies have a huge number of small shareholders, while a private firm has a smaller number of huge shareholders.
- Public companies give no authority to their shareholders in operations, while private companies give important roles I operations to their shareholders.
- The shareholders of a public sector company may have different agendas. The private equity based company's stake holders' work with a common agenda.
- Public companies cannot take swift decisions. Garnering support from large number of shareholders is slow and time consuming. On the other hand, equity companies can take quick decisions for the company, in lesser time and gain from them.
- While public companies cannot bring about any management changes easily, private companies for equity can make fast management changes and benefit from them.
- A public company is bound by numerous regulations and disclosure requirements, while an equity has lesser regulations and little disclosure rules.
- Finally, public sector companies, with time seem less lucrative to their talented managers, who move to private firms for better avenues. Private equities attract talented managers as they usually offer much better compensations.
Advantages of investment in Private-equity backed firms:
- There is a huge scope of investment for private equity. They can invest in new unlisted companies that are private startups or divisions of larger corporations or they can take over those listed companies that unappreciated by the stock markets. Private equities attract a lot of public sector companies that are hoping to go private.
- Equity firms are highly selective and it is only after a lot of research and analysis, that they select they shortlist a company that has the right attributes to achieve growth.
- The management of private equities is answerable to the shareholders. Shareholders can question the management for their performance and target deliverables. Also, these firms give access to each shareholder to get in touch with the top management if they feel the need to do so.
- Looking at the fast developing and strengthening Indian economy, there seems to be very promising growth of firms in the near future. In order to make the best investment decisions, it is advisable to consult a wealth management company. A professional's advice can help one take profitable decisions after analyzing various investment opportunities available.