How Private Equity Improves Business in the Long Term

12 Dec

When a private equity firm invests in a company, the goal is always to improve that business in the long term. Because these corporations are backing smaller companies with capital, they want to see it succeed as much as anyone does. But there are a few things that a large corporation can provide that just wouldn’t be available otherwise.

First of all, private equity firms invest long-term capital into small companies, allowing them to expand and grow. If a company is struggling, private equity firms will often purchase them if they see lost potential. Large, successful firms can offer better efficiency strategies, strong leadership training, and valuable guidance—especially to struggling companies.

Programs like Capstone, founded by Dean B. Nelson, provide the opportunity for portfolio companies to interface effectively with their parent companies. Boards for portfolio companies are generally comprised of a combination of members from the original company as well as mentors from the private equity firm. Control is shared, and in many cases the only changes that take place are improvements to structure, practices, and sustainable value.

Private equity firms often focus on a few main areas: creating better frameworks for sales staff, targeting areas for expansion, minimizing “lost” money and using funds efficiently, improving pricing functions, and helping to negotiate with supply vendors. For smaller companies especially, guidance in these areas is invaluable and helps create a company that will be fully sustainable and healthy in the future.

In the best cases, investments from private equity can also encourage small business owners to expand hiring and pay their employees higher wages. Employee satisfaction is a big factor in work efficiency, and some of the country’s most successful companies and corporations also have the most satisfied employees.

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