What is Private Equity?
Private equity firms acquire and invest in companies by borrowing debt and injecting equity, typically raised from limited partners who have invested in a private equity fund. Private equity firms then privately hold these companies and seek to improve operations and financial performance, generally investing on a 4-8 year timeline. Most private equity transactions take place through a leveraged buyout (LBO).
Different focuses of private equity include growth equity, which focuses on fast-growing companies, and buyouts which focus on majority control transactions.
Understanding Private Equity Fund Types
Mega Fund (MF)
This definition varies significantly and mainly refers to massive multi-asset class platforms. The bar is typically around $15B-$20B Buyout Fund size. These are well established firms that have historically raised and can presumably continue to raise large pools of deployable capital. LPs include large endowments, pension funds, sovereign wealth funds, and other large asset managers seeking private equity exposure.
Upper Middle Market (UMM) & Middle Market (MM)
The Middle Market typically operates in the $200mm-$1.5B EV range, though portfolio companies can reach $2B-$3B EV depending on strategy. These funds have strong reputations and sophistication in building 'blue chip' companies through business formalization, strategic actions like tuck-in M&A, supply chain rationalization, and operational improvements.
Lower Middle Market (LMM)
LMM funds typically don't invest past $25-$30mm of EBITDA, or north of $200mm+ EV. Investment criteria usually ranges from $5mm-$25mm Adj. EBITDA. Below $5mm EBITDA is typically where SMB Buyers or Family Offices operate.
Growth Equity
Growth equity funds target fast-growing companies with creative capital solutions to spur growth. Focus industries include Tech, Consumer, Healthcare Services, Life Sciences, and Emerging Energy Transition. These companies may be late-stage startups or have profiles similar to traditional LBO candidates.
Career in Private Equity
If you join a Private Equity firm, you'll be responsible for putting together investment materials regarding new deals, with a lot of time spent in PowerPoint and Excel. This will be an extension of the skills you learned in investment banking, with a focus on assessing whether your firm should invest in this opportunity.
Notable Private Equity Firms
Notable Private Equity firms include Apollo, Bain, Blackstone, KKR, Thoma Bravo, and Vista Equity.
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