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A private equity company is an investment firm that raises money to help companies grow by purchasing stakes. This is different from individual investors who purchase stock in publicly traded companies, which gives them the right to dividends, but has no direct impact on the company’s decision-making process and operations. Private equity firms invest in a group of companies, also known as a portfolio, and typically attempt to take over the management of those businesses.

They will often find a company with room for improvement and then purchase it, making adjustments to increase efficiency, reduce costs and allow the business to expand. Private equity firms can use debt to buy and take over a company, a process known as a leveraged purchase. They then sell the company for profits and collect management fees from the companies in their portfolio.

This cycle of purchasing, enhancing and selling can become time-consuming and costly for businesses, especially smaller ones. Many are looking for alternative financing methods that permit them to access working capital without the added burden of the PE firm’s management costs.

Private equity firms have been able to fight against stereotypes that paint them as strippers of corporate assets, and have emphasized their management skills and demonstrating examples of successful transformations of their portfolio businesses. Some critics, like U.S. Senator Elizabeth Warren, argue that private equity’s focus on generating quick profits is detrimental to the long-term value and causes harm to workers.

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