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Private equity

Private equity represents a kind of investment from financial investors in the equity of companies that are not publicly listed and have potential to achieve high growth rates over a period of 3-7 years. These are investments that transform, create new value and mean an active investment strategy for the private equity management companies. An active control strategy is reflected in the participation and achievement of business growth ambitions through financing and providing strategic advices and information during key moments of company development. The main goal of fund management companies is to find growth potential companies with the aim of combining capital, talents and strategies to strengthen the company and enhance its value.

Private equity funds are suitable for funding specific projects or companies in the phase of intense growth or consolidation in the relative market. At this point a distinct need for financial resources appears, that can follow intense growth and also leave enough space to the entrepreneurship and for a free cash flow.

Private equity funds were established for a period of 10 years, with possible extension of up to two years to allow additional time to exit an investment if necessary. The investment cycle of the private equity fund usually lasts 3-5 years and during this period the focus is on management in order to increase the value of the investments for the benefit of all co-owners of the companies in the portfolio. Private equity brings not only financial resources but also management skills and it has been shown that it introduces best practices and standards in the management of the companies in the portfolio which results in higher growth rates than competitor companies.

Private equity funds have a long-term investment horizon, participating in operations throughout the duration of the investment and usually do not require guarantees for investment return. Private equity fund investments do not restrict cash flows because it does not require any interest or dividends on investments, it "charges" when selling shares in the company and if the business was successful a return on invested assets is achieved. It is precisely because of this that the interests of other co-owners and the fund are aligned and focused on increasing the value of the company. Private equity shares the risk of failure and the reward for success with other owners in the company until it sells its own stares. The sale of shares can be realized through amanagement buy-out (MBO), to the strategic or financial investor or even listing them on the stock market. Most frequently, the private equity fund reserves the right to decide on the appropriate time of the sale of its equity in a company or possibly the entirety of the company as well.