Private equity covers the many ways of raising finance ‘off exchange’. For example in a ‘public-to-private’ deal, an external investor might take a listed company private by buying its shares using large amounts of debt finance, for a target fixed period of, perhaps, five years. In return that investor might ask for a seat on the board and the right to convert debt into equity later when the company is relisted. Meanwhile, the business is ruthlessly stripped of costs and non-core businesses in an attempt to boost profits. Should this work, the private equity backers and the firm’s management stand to make big profits. But critics argue that private equity in this form adds little true value to a listed firm and is little more than asset stripping.
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