Mark Hauser Details How Private Equity Transactions Work

Private equity transactions are a part of the finance world that many people don’t know much about. Mark Hauser has been writing about deals for years. Here he details what happens when private equity firms buy companies and also goes over some recent deals, including the purchase of Hershey by Berkshire Hathaway this past summer.”

In his latest post, Mark Hauser details how private equity transactions work in today’s market. He starts with how private equity firms typically make their money by using debt to invest in public stocks or companies before selling at a higher price — these are known as buybacks. One example is Blackstone Group’s purchase of HCA Healthcare Inc.

How Private Equity Transactions Work

Private equity transactions are usually completed through a leveraged buyout. The company’s assets, including stock and debt, are used to acquire a public or private company. Next comes the restructuring of the company and then the selling of some of its assets. The private equity firm then profits by selling off some of its shares.

A company may be purchased without an initial public offering (IPO), so the private equity firm completes a leveraged buyout or LBO. The company and its shares don’t trade publicly, so the value is usually derived from other firms’ valuation of the company or its stock. That value is called a “deal price,” and it will represent what the private equity firm paid for it. It is different from an IPO in that no buyers (i.e., on public markets) are involved at this step.

Mark Hauser says, “Private equity deals are increasingly popular. They typically create value for all parties involved, as the company buying is doing so with the hopes of growing it to a larger size while at the same time getting a return on their investment. The company bought by private equity usually benefits from an influx of capital and the firms’ restructuring and business acumen.”