What does a PE firm do in a portfolio company?
A PE firm usually invests by taking a significant ownership stake and working actively on the company's development. This may involve strengthening the management, making the business more efficient, carrying out acquisitions or creating a better structure for reporting and governance.
The aim is to increase the company's value within a certain period. Once the goals have been achieved, the company is often sold on, for example to an industrial buyer, another financial investor or through a stock market listing.
How private equity investments are usually structured
Private equity investments often follow a structure in which ownership, governance and exit are planned early.
- The PE firm invests by buying an ownership stake
- A clear plan for value creation is drawn up early
- Governance and reporting often become more structured
- The time horizon is usually several years, with a focus on exit
- The sale takes place when the growth in value is realised
Once you understand the structure, it becomes easier to assess what a PE firm actually means as an owner and what changes may come with the investment.
What is worth understanding before you bring in a PE firm
Worth bearing in mind
When a PE firm comes in as an owner, it is rarely a matter of a passive capital injection. Private equity often has high demands for growth, profitability and follow-up, which affects how the company is governed and which priorities are set.
For existing owners and management, it is therefore important to understand what time horizon the PE investor has and what mandate it wants. A clear shared view of strategy, control and exit reduces the risk of friction when changes are to be made.
Frequently asked questions
What does PE stand for?
It stands for private equity, which means investments in unlisted companies.
How do PE firms make money?
By increasing the value of the portfolio companies and selling them on at a profit after a few years.
Are PE investments risky?
Yes. Since the companies are not listed, liquidity is lower and the return depends on how well the development plan succeeds.
How long is a typical investment period?
How long is a typical investment period?
Can private individuals invest in PE firms?
Yes, but it is often done through funds, structures or platforms, since direct investments require more capital and long lock-in periods.