What is a private equity firm?

A private equity firm is a business comprised of investment managers and associates, which acquires a stake in a company through debt, leverage buyouts and other forms of capital. The firm then improves the stock position of this business and later sells their controlling interest for a greater return.

Private equity firms acquire a percentage of the company, up to full ownership, and execute a variety of changes to make it more profitable. Employing debt to acquire the company is the preferred method, because it allows the acquisition of larger companies, for which the starting capital may not be available.