The Private Equity Industry
Private equity firms invest in companies that are not publicly traded and the top firms provide tremendous private equity job opportunities. Private equity investments can take various forms: Leveraged Buyout (LBO), Mezzanine Financing and Venture Capital (VC).
LBO is all about taking control of an established firm by leveraged financing techniques. LBO firms, such as Kohlberg Kravis Roberts & Co have tainted the industry’s reputation through well publicized dismantling of well know companies. While private equity often gets a bad rap due to its spotted past, research shows that companies with private equity owners tend to outperform public industry indices. More often than not, when private equity investors get involved revenues and margins improve and jobs get created. Some of the top private equity firms include: TPG, The Carlye Group, The Blackstone Gorup, and Kohlberg Kravis Roberts (KKR)..
The challenge in private equity is availability of capital, the lifeblood for deal making. Mezzanine investors typically focus on the debt side of financing, which provides more seniority than holding equity shares in a company. These investments, due to their debt focus and preference over equity shares, tend to carry with them less risk and the return on investment tends to be lower than in an equity based investment.
Venture capital focuses on the growth of a company through the launch of new products or services. Funds raised by VC firms tend to be much smaller than the multi-billion dollar funds raised by the LBO firms. These investments can take place in the early stages of a companies life cycle (known as the “seed round”), or in later stages as a company focuses less on launch and more on market expansion. The VC industry is not exactly known for its desire to support company founders. Entrepreneurs often shun the thought of taking venture capital investments because many VC firms have vulture-like reputations when it comes to structuring the investment deal terms. Founders often see their stake in the company taken down to single digits even when the company growth plans are achieved.
Private equity firms provide investors returns through successfully exiting their investments. This takes place in one of two ways, either the portfolio company goes public (IPO) or the company is sold to a strategic corporate buyer for a price higher than it was purchased.
The Private Equity Model is Changing
Some say that the traditional private equity model is breaking. The days of using financial engineering (i.e. high leverage, arbitraging higher exit multiples) to generate higher returns are gone. Instead, the focus will be on locating good companies that are undervalued and driving profitable growth as a way to generate good returns.
International private equity investment jobs activity will play an important role in the next decade, especially in Asia and India. In addition to rapidly-growing countries such as China and India, private equity investments will likely increase in resource-rich countries such as Russia, Brazil, Indonesia and Australia.
Private Equity Job Skills Needed
Financial executives who are light on private equity accounting job skills may still be able to land private equity jobs. Firms backed by private equity tend to value operational skills over accounting expertise. Private equity backed firms tend to focus more on cash flow driven by operational excellence and sales growth rather than financial reporting.
Well rounded business professionals are the best suited for long term careers in private equity. They need to have operational experience, leadership ability, strong communication skills, financial modeling skills and a compelling personality that inspires teams that are often under great pressure to perform.