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Private Equity Still Strong

Volatile markets create investment openings.

Fortnightly Magazine - June 2008

bases and sustainable free cash flow. If a start-up company is looking for an investor, venture-capital firms are typically the answer. Additionally, business owners should be able to show that the company has no significant legal or environmental problems.

Private-equity funds often look for companies with strong market positions and an opportunity to increase profitability. Owners typically must be willing to sell a significant majority stake in the business (unlike with venture capital firms, which often will take a minority stake). But owners or the existing management team frequently still are allowed to manage the company during the life of the partnership; private-equity firms typically do not operate businesses on a daily basis. Instead, private-equity firms plan to sell or take companies public within three to seven years after the initial acquisition.

When a business owner in the energy or utility industry is ready to sell to a private-equity firm, the selection of the right equity partner is of utmost importance. Selecting the right private-equity firm allows a business owner to be able to execute a flexible transaction structure, create rewards for senior managers and gain access to new strategic and operational resources to help improve and build the business.