In the United States, there are three main types of private equity: Leveraged Buyouts, Mezzanine Investments, and Growth Capital. We show you its main features and which one works best in each case.
Money and purchasing power play an integral role in the world of private equity, so it’s important to know how the types of capital work and how they differ. In the United States there are several types of capital: Private, risk, LBO, PIPE, mezzanine and others. But how is each type classified? And what makes them unique?
In this guide, we’ll provide a basic overview of every form of private equity (PE) available in the United States, including LBO, mezzanine, and growth. We’ll also look at some of the more common terms associated with private equity investing and give you an overview of parameters that help us really understand what’s going on in any given scenario.
In the United States, different types of capital are regulated by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and the Department of Justice/Securities Investor Protection Corporation (DOJ/SIPC).
Learn about the 3 types of private equity
Private equity is a type of capital that is invested in companies that are not publicly traded. Private investors make these investments through private equity funds or directly into the business of a company.
There are three main types of private equity in the United States: leveraged buyouts, mezzanine investments, and growth capital. We show you its main features and functions.
Leveraged Buyout (LBO)
A leveraged buyout occurs when an investor acquires a majority stake in a company by borrowing against its assets, and then uses the acquired assets as collateral for the loan. Once acquired, the company is restructured to allow it to generate higher profits and repay its debt obligations over time. LBOs require large up-front payments but low operating costs; they are best suited for mature companies with stable cash flows and predictable revenue streams.
The goal of an LBO is to take a company private and then improve its performance through better management or other means. Once these improvements are made, the fund can either sell the company or take it public again at a higher valuation than when it was acquired.
Banks typically issue mezzanines as senior unsecured debt securities (senior because they get paid before other debt holders). They are also known as mezzanine financing because they are often used by companies between venture financing rounds. Mezzanines have lower interest rates than senior debt, but a higher yield compared to common debt.
Unlike leveraged buyouts, mezzanine investments do not involve taking companies out of the public markets entirely, but instead provide financing to companies that have already been taken private through other means (such as leveraged buyouts). Mezzanine funds make loans or provide equity investments to companies seeking capital at lower cost than would be available in traditional credit markets (such as banks).
Growth capital is a type of private equity that provides a company with financing to expand its business or undertake new projects. The money can be used to hire new employees, pay for marketing campaigns, or upgrade equipment and machinery. Growth capital can also be used to buy out competitors or acquire smaller companies that are part of your supply chain or distribution network.
The goal of growth capital is to help companies grow faster than they would if they were relying solely on their own resources. Often this means borrowing from banks or private equity investors, but there are other options available as well. For example, some businesses may use an angel investor to provide them with cash in exchange for a stake in their business and/or future profits from the success of the business.
Why invest your private capital in BAI Capital?
BAI Capital or Become American Investor LLC is a boutique firm with more than 12 years of experience specializing in raising, investing and managing private capital. Mainly, for capital investments in real estate development projects in the United States.
With a presence in the real estate sector in the states of Florida, Texas and New York, we specialize in generating value from the acquisition of land to the development of large-scale projects. Such as residences for the elderly, student residences, multifamily buildings for rentals and mixed use that include condos and retail.
Our mission is to safeguard the capital of the partners and the own capital under the minimum risk exposure, with a safe development and going through all the stages. Purchase of land, adjustment of urban zoning, commercial vision in architectural development and management of building permits. Then, we take charge of the capitalization, construction and exit with return of the capital and profits to the partners.
In this way, we guarantee fixed and stable returns for your client portfolio. In addition to having a confidential work protocol with encrypted web forms, use of protected personal data and private meetings with our agents throughout Latin America.