quity finance

Private Equity Firms Role In Business

Equity business firms are professional businesses that organize and arrange capital from various investors. They then identify companies which are failing and need to be bought or restructured. Once their minimum criterion is met, they invest in these companies on the understanding that the companies will be improved and sold for a profit. If the companies are not sold for a profit, they will be used as an income generating mechanism for the investors.

There is a new buzzword in the business world. Private equity firms have gained a reputation, particularly during the global recession. There essentially two ways to look at private equity firms. One is to look at them as evil vultures that hit businesses when they are down. They look for weak spots and target them on a consistent basis. They are ruthless exploiters who do not give any thought to the plight of millions of people who are working in failing industries. They are then in effect the cold hearten reality of unfettered capitalism.

Equity firms have been accused of the now notorious practice of asset stripping. Apparently they buy a company that has financial problems but still has some valuable assets. They then sell the assets at below market price but above the minimum payments they made to buy the company. The business in question is then fully gutted of any valuable asset such that it can no longer continue production. The final process is then to close the company or re sell it at a low price to be turned into another business altogether. In the meantime they also undertake some restructuring which inevitably leads to the large scale loss of jobs causing untold misery to families.

On the other hand you can look at equity firms as angels of mercy. They identify firms that are failing and then pour financial and technological resources into them. They can also offer certain expertise to failing firms. They contribute to macro economic growth by literally rescuing failing firms from the brink of extinction. As for the employees, without the interference of the equity firms, they will not have any job to protect any way.

This line of thought also credits private equity firms with the introduction of business restructuring that leads to massive cost savings. They are able to rationally examine the cost benefit channels for each aspect of the business and are able to restructure out any inefficiencies. The resultant redundancies are regrettable but inevitable in the end.

As to which perspective any individual takes, it is entirely up to their own research and understanding of the subject. There are various examples to show that private equity firms help business and governments. There are also numerous examples to show that private equity firms impact very badly on working people and their families. The debate continues.

Governments by and large tend to favor private equity firms. This is in spite of their fearsome reputation and the complaints of workers as well as trade unions. Many governments will give them tax breaks in order to prevent their migration to tax havens.

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