Small Business Investing

Private Equity

How do companies use private equity investments to improve their financial picture?

Many companies improve their financial picture and unlock value within their organizations by spinning off or selling parts of the company to private equity firms, who then attempt to manage and turn around the new company. Perhaps the company did not fit the overall strategy of the parent company, or market conditions forced the sale of a weaker-performing division. The private equity firm acquires the division from the parent company, hoping to improve the new stand-alone company and receive financial rewards for doing so. The parent company may also benefit from the influx of capital for the sale of the division, as well as the savings from not having the expenses related to the acquired company on its books. In some cases, the parent company may also invest in the new venture, hoping to make a better return by reorganizing or merging the new entity.


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