A Private Equity Firm is a company that pulls money from other investment bodies like trust funds and pension funds; some institutional bodies like Universities and Foundations; and high net worth individuals: and invests all these money in the private equity of other companies.
Private Equity means non-publicly traded equity of companies; though it often refers to privately operated companies, it sometimes applies to publicly traded companies too.
If you're the news junkie type, you would have come across the delisting of Nigerian Bottling Company (NBC) from NSE. In June 2011, Coca-Cola Hellenic Bottling Company, via a private arrangement, acquired all of NBC. Though Coca-Cola HBC is not a Private Equity firm, but that's how Private Equity firms buy out publicly traded companies they are interested in.
And here's how most Private Equity firms operate:
- They pull money from limited investment partners (some only admit members willing to contribute $1,000,000,000 and above)
- They buy into private companies they are interested in. Actis invested in Palms Shopping Mall.
- They privately buy into public companies they are interested in. Actis invested in Diamond Bank. ECP invested in Intercontinental bank.
- They buy out a public company and make it a privately own company. Not yet happened in Nigeria.
- They cash out in good times by selling to another investor or taking the company public.