Introduction To Private Equity
Earlier just buying and selling was considered to be the business and thus was not very complex process, but change in the business environment brought many complications in the business. Now, business is not only buying and selling of goods and services, but is more than that. Some complex factors of dynamic business environment are acting as a barrier in the growth of the organizations.
Through proper planning and strategy formulations, companies can mold these barriers into opportunities to attain its goals (Srivastava, 2012). This report will talk about mergers and acquisitions in volume. In addition to this, it will also highlight the concept and use of private equity in raising funds for the operations, expansion, diversification, etc of the company.
Reasons for Investment in Private Equity
- Some of the main reasons to invest in private equity are:
- At times, when the companies perform well, they provide higher returns to debt investors and public equity. Thus private equity investors can gain from higher returns.
- The trend shows that in the last decade and half, the returns delivered by private equity are exceptionally high.
- By going to raise funds through private equity, companies do not have to collateral or sell their assets. Thus, without putting anything, they get liquids (Kend and Katselas, 2013).
- In case of expansion or diversification, companies need funds. Thus, through private equity they can achieve this
- It not only helps in generating cash, but also helps companies to build a relationship with potential customers and suppliers through the private equity professionals.
Key Drivers in Expansion of Private Equity since 2000
Since 2000, private equity is considered as one of the most attractive investment options as it has provided huge returns in the past. The main factor behind the substantial growth of the private equity is the dot com companies. In addition to this, Yale effect also injected growth in private equity.
The annual report of the Yale shows that on an average, the private equity delivered a return of 34% in the last decade (Cuneo, Lopez and Yague, 2012). In the views of several financial analysts, investing in private equity in the emerging markets will enable investors to get higher returns. In addition to this, according to the new market new rule of 2010, private equity returns have tripled in last few years.
Earlier, it was very difficult to raise funds through private equity, but with the passage of time, as various partners such as wealthy investors, institutional investors, insurance companies, banks and many other financial institutions got associated with private equity, it has now become easier and advantageous to raise funds through private equity (Cuneo, Lopez and Yague, 2012).
In addition to this, to gain rights in the company and in its decision making, managers of majority of the companies raise funds through their personal sources at the time of a management buyout.
Mergers And Acquisition
In past few years, a lot of attention has been given on the management strategies such as mergers and acquisitions. Mergers and acquisitions are nothing but simple buying and selling or combination and division of different companies. Most of the time people interchange these two terms with each other, but there is a difference between the two. Under acquisition, one company takes over another company and gets all rights in its managements.
That is, it becomes the owner of the acquired company (Coultard, 2000). Although the ownership transferred in case of acquisition, but the share of the acquired company are traded in the market. On the other hand, in merger, two or more companies of same or different size are combined together mutually to form a new organization.
In the case of mergers, shares traded on the stock exchange are dissolved and the shares of the new company are traded. Therefore, the basic difference between merger and acquisition is that merger takes place with mutual agreement while acquisition takes place in unfriendly and forceful environment (Metwalli and Tang, 2003).
The present paper is a succinct analysis of the aspects which act as positive and negative elements in the growth and development of a business concern. Organizations do not operate in vacuum and they have a very complicated environment in front of them. Competition is huge and intense.Hence, for survival, organizations must have knowledge about the different supporting elements and the forces which can act as roadblocks.
Thus, in this research, the funding source which is private equity has been elaborately explained. Private equity has gained momentum in the recent past. The primary reason for using this source is its ability to generate high returns. In addition to this, the study also assesses the impact of mergers and acquisitions and the role a CEO can play for a merger to succeed.
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- Auerbach, J. A. 2008. Mergers and Acquisitions. University of Chicago Press.
- Brito, D. and Lopes, C. M. 2006. Mergers And Acquisitions: The Industrial Organization Perspective. Kluwer Law International.
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- Coultard, F. 2000. Merger but not an acquisition. Circuit World. 26(4).