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Private equity: a guide for finance directors

An injection of finance can spur a business onto new levels, it can also revive a flagging enterprise. Private equity is a popular method of boosting spending power, but it comes at the cost of control. So why do so many businesses give up controlling stakes in return for cash asks Phil Scott, managing director at FD Recruit

How private equity works

A loan, for example from a bank or other financial institution, must be repaid, with interest, usually at regular intervals previously agreed. Private equity investors may take fees and dividends for their work, but the true payoff is realised when selling their stake for more than it was purchased for.

Therefore, investors have a vested interest in the organisation reaching its full potential. A loan, on the other hand, must continue to be repaid, regardless of whether it’s spent wisely or the organisation flourishes or not.

Private equity investors are generally groups of high net worth individuals pooling their resources into a fund. That fund will then seek out opportunities to maximise returns.

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