Home Investor Academy Private Equity Private Equity What a private equity stake actually is, how PE returns are made, how a buyout is priced, evaluating one specific fund or deal, its risks, costs and taxes, and where it fits in a portfolio.
Buying, improving and eventually selling a company
Lessons Buying a whole company, mostly with somebody else's money — A private equity fund buys control of established companies, usually financing much of the price with debt the company itself must repay. (9 min)Three engines: profit growth, debt paydown and a higher exit multiple — Buyout returns come from growing earnings, using cash flow to repay debt, and selling at a higher valuation multiple - and only the first is reliably within the manager's control. (13 min)The entry multiple is set by auctions, and the fund's value by its own appraisals — Buyouts are priced as a multiple of earnings in competitive sales, and between purchase and exit the fund's value rests on appraisals that move far more smoothly than markets. (11 min)Appraising one fund: where returns came from, and how often deals lost money — A buyout track record is judged by its dispersion, its loss rate and the source of its gains, not by the average multiple. (13 min)Leverage turns a 35% fall into an 87% loss, and the fees arrive regardless — The main risks of buyouts are leverage working in reverse, illiquidity and layered fees, and tax treatment depends on jurisdiction and structure. (12 min)A leveraged cousin of your stock portfolio, not a separate world — Buyout exposure behaves more like leveraged small and mid-sized company equity than its smooth reports suggest, so it belongs in the equity bucket and only in modest size. (8 min)All Investor Academy subjects