In general, private equity funds are characterized by making available their investor’s resources for a limited period of time (usually less than 10 years) and the investees use them for an even shorter period of time. During this period, these companies need to maximize their profits to cover for the management costs and return substantial profits to their investors.
In order to achieve this, they can choose between two possible strategies:
- Leveraged finance: consisting of bringing the company into debt in order to buy it for a lower amount and then make the acquired company pay off all or part of the debt in order to sell it with little debt for its total amount.
- Business exponential growth while using their own capital.