Obtaining private equity capital is ideal for companies in a variety of situations

As opposed to going public - private equity capital offers numerous advantages that make it easier and quicker for companies to finance various transactions.

There are many specific instances in which private equity capital makes sense.  For starters, companies often turn to private equity when they have strong prospects for growth that require financing with a combination of debt and equity funds.  They may also opt for private equity capital to grow their companies in order to obtain a better price in a more significant IPO with a higher quality underwriter in future transactions.  The lower transaction costs and on-going expenses (i.e., reporting expenses) associated with private equity relative to going public similarly make private equity an attractive alternative. 

Private equity capital likewise enables companies to acquire capital more quickly than would otherwise be possible.  For instance, companies use private equity when they can no longer take out loans from their banks, or if they are not yet bankable.  To take another example, they seek out private equity when public equity is not yet available due to current IPO market conditions, a company's present size, and/or its recent track record. 

Private equity capital provides the further benefit of allowing companies to make acquisitions more easily, whether to consolidate an industry or for other strategic objectives.  In addition, since such financing is also much less time consuming and attention-diverting than an IPO, it offers companies the opportunity to complete a particularly strategic acquisition quickly without having to wait for bank and/or seller financing to come through. 

Companies also turn to private equity capital for the added flexibility it enables in terms of their specific plans for growth.  In particular, it allows them to grow at their desired rate quietly and while maintaining a low profile.  Private equity likewise provides important advantages relative to raising debt.  It allows companies to maintain a stronger balance sheet on the record, improves their ability to leverage the equity and access additional capital, and provides a partner they can rely upon if necessary. 

Moreover, private equity capital involves fewer restrictions, such as financial and non-financial compared with public financing options, and there are no debt service requirements to satisfy.

Kison Patel is an expert in the field of real estate acquisitions. He can be reached at kison@tafunds.com

Robin C. Trehan is a specialist in the financial advisory and M&A. He can be reached at robin@tafunds.comm

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