Private equity funds add key manpower for future growth (2024)

FAQs

Private equity funds add key manpower for future growth? ›

Because the companies they own employ nearly 12 million people in the United States, private equity firms could have a significant impact on the push to create quality jobs if they pursue growth strategies that prioritize investing in talent.

Growth equity – Providing equity capital for later-stage ventures who are looking to scale up their markets or operations. Buyout – Focusing on acquiring majority stakes in established public companies in order to take them private and restructure them.

In 2024, private equity firms will expand their use of artificial intelligence. We anticipate that AI implementation will quickly shift from automating back-office functions to automating enterprise-scale platforms.

A key way to maximize returns is to increase the profitability and value its portfolio companies. This is often achieved by implementing operational improvements, expanding market reach, or innovating products and services.

First, there are Initial Public Offerings (IPOs); these help in taking private companies public, thereby attracting investors and generating liquidity. Secondly, consider selling to strategic buyers. This involves identifying compatible firms, capitalizing on synergies, and facilitating acquisitions.

While private equity (PE) typically focuses on mature businesses, often through leveraged buyouts and operational improvements, growth equity (GE) concentrates on companies that are poised for rapid expansion and have the potential to disrupt their respective industries.

Both Growth Equity and Private Equity present distinct opportunities and risks. Growth Equity focuses on the growth stages of a business, offering flexibility and lower risk. Private Equity allows for significant control and diversification, encompassing investments across various stages and strategies.

The volume of private equity deals is poised to grow in 2024, along with an increased focus on AI to drive long-term value creation, according to the Franklin Templeton Global Private Equity team.

PE funds, which have been deploying money in private lending and the secondary market while M&A markets were stalled, are looking for reverse mergers (52 percent) and minority investments (50 percent) in 2024. Making deals pay off is increasingly challenging, according to both PE investors and corporate deal makers.

While competition in private equity is likely to remain intense, firms that adapt and innovate their strategies, maintain strong relationships, and focus on value creation will continue to thrive.

Why is private equity booming? ›

Institutional investors and wealthy individuals have increasingly turned to private equity firms for greater returns and control. These firms acquire, restructure, and often improve the performance of companies, driving economic growth and innovation.

Here, as mentioned before, a PE firm can take in additional debt to increase funds, keeping the target company as a collateral. Sometimes referred to as PE firms paying themselves, this often allows them to take debt against healthy companies that offer relatively low risk leverage against debt.

In 2000, private-equity firms managed about 4 percent of total U.S. corporate equity. By 2021, that number was closer to 20 percent. In other words, private equity has been growing nearly five times faster than the U.S. economy as a whole.

Examples of solid answers to the “why private equity” question: You want to work with companies over the long-term instead of just on a single deal. You want to get exposed to the operations of companies and understand all aspects rather than just the financial ones (note: “exposed to,” not “control” or “improve”).

General partners (GPs) of private equity funds solicit commitments from limited partners (LPs) to invest in them. The process involves pitching the investment vision and how it will result in compelling financial returns. To garner LP support, GPs must also demonstrate a track record and ability to win deals.

Give a clear statement of your vision.

It's important to paint a simple picture of your business plan at the outset of your investor pitch. Explain what problems your business solves for whom, how it stands apart from competitors and how it makes money.

Private equity firms commonly deploy various strategic approaches to achieve their investment objectives. These strategies encompass A) leverage buyouts, B) growth capital investments, C) venture capital initiatives, D) secondaries, and E) fund of funds structures.

Primary driver of returns – While private equity firms typically generate returns primarily from debt reduction in leveraged buyout (LBO) transactions, growth equity firms generate returns primarily from increases in revenue or profit, resulting in a larger equity valuation at time of sale.