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Other useful sources of information
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Initiative for Private Equity Investment Trusts iPEIT is a group of UK-listed private equity investment trusts, including Graphite Enterprise, formed to raise awareness and increase understanding of the sector. |
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British Venture Capital and Private Equity Association The website of private equity's UK industry body, the BVCA. |
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Demystifying private equity investment trusts |
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BVCA 2006 Economic Impact Report The British Venture Capital Association's 8th annual survey of the impact of the private equity and venture capital on the UK economy |
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The private equity market
Private equity is a term used to describe investment in private companies. It covers a wide spectrum from start-up companies capitalised at less than £1 million to large buy-outs capitalised at over £1 billion. The main sub-sectors of the private equity market are venture capital, which covers early stage investing, and buy-outs, which covers management buy-outs, buy-ins and similar transactions. Graphite Capital’s focus is on the buy-out market.
Buy-out investments generally involve the purchase of entire companies. The sellers may be the founders or other individuals, or they may be larger companies seeking to divest subsidiaries. Quoted companies are also bought by private equity investors in public-to-private transactions.
There is less short term performance pressure on private equity investments, making it possible to adopt a longer term approach. When companies are eventually ready for disposal, they may be sold to trade or financial buyers, or they may be floated on the stock market.
Buy-out investments are generally in well established companies and are structured with a higher level of debt than quoted companies, using senior bank debt and sometimes mezzanine debt. Mezzanine is junior debt with a higher return than senior debt to compensate for the greater risk. Private equity investors provide the remainder of the funding in the form of equity and equity-related investments. These both carry the greatest risk in the structure and earn the highest return when investments are successful.