- business

An explanation of Private Equity Firms

Private equity firms are a kind of company that has grown in number over recent years. They essentially find sources of capital, usually a combination of borrowing and investment capital from wealthy individuals – and then ploughing it into a business that needs. The business that gets chosen will be one that has been identified as under-performing and would therefore benefit from this injection of expertise and money. The idea is usually that the business will be brought back into profitability and then sold off at a later date for a profit. People who have invested in a given firm will make money from either the profits and the sale or just the sale.

Private equity firms have been held up by the government as an important part of the economy, as they raise companies from the dead – as they suggest is the case. Of course, they are not always successful, and they sometimes fail catastrophically. Some people do not like private equity firms because they believe they frequently put jobs at risk or indeed put people out of work; that they have only profit in mind and do not care about the worker at all.

As well as putting people out of work the private equity firm may decide to sell of whole sections of the business – these are nearly always the parts of the firm that have been deemed unprofitable; ones that are thought to be impossible to turn around. This means that all property and assets would be sold – and of course all staff and workers would be laid off.

Unions are particularly scathing of this practice which is known in some circles as ‘asset stripping’. The practice of private equity is one that was sparked in the 1980s by Margaret Thatcher’s deregulated method of doing business.

Private equity firms are the subject of come controversy, as they have appeared in news and current affairs programs over the years because of the generous tax breaks they receive. Other industries feel this is unfair; but the government may well state that the tax environment needs to be competitive for these kinds of firms so that they do not move abroad. The private equity business is very big in the united kingdom, and many feel that it needs to be protected. There is perhaps less sympathy for these kinds of business as they are seen by some to contribute to the already negative economic situation currently being experienced my many people in the uk.