LIMITED PARTNERSPensions · EndowmentsFamily OfficesCapitalPE FUND (GP)2% Mgmt Fee20% Carry8% Hurdle RateEquity 35%DEBT (65%)Sr. Secured · Mezz · PIKDebt 65%NEWCOSPV / HoldCoTARGETPortfolio Co.Cash flows service debt → equity returnsLBO FUND STRUCTURELeverage amplifies equity returns · Target IRR: 20–25%
Module 01

Private Equity

How firms acquire, transform, and exit companies to generate outsized returns for their investors.

Core Concepts

Understanding Private Equity

The essential building blocks you need to grasp before diving deeper into PE strategy and deal mechanics.

What is Private Equity?

PE firms raise capital from institutional investors (LPs) to acquire private companies, improve them operationally, and sell them at a profit — typically over a 4–7 year horizon.

Fund Structure

PE funds operate as limited partnerships. General Partners (GPs) manage the fund and make investments. Limited Partners (LPs) — pensions, endowments, family offices — provide the capital.

Management & Carry

GPs charge a ~2% annual management fee on committed capital, plus ~20% carried interest on profits above a hurdle rate (typically 8%). This '2 and 20' model aligns incentives.

Leveraged Buyouts (LBOs)

The hallmark PE strategy. Firms use a combination of equity (30-40%) and debt (60-70%) to acquire companies, using the target's cash flows to service the debt over time.

Value Creation

PE firms create value through operational improvements, strategic repositioning, add-on acquisitions (bolt-ons), revenue growth, and financial engineering.

Due Diligence

Before any acquisition, PE firms conduct exhaustive analysis — financial, legal, commercial, and operational — to assess risk and validate their investment thesis.

The Process

PE Deal Lifecycle

From initial sourcing to final exit, here's how a private equity transaction unfolds from start to finish.

01

Sourcing & Screening

Identifying potential acquisition targets through proprietary deal flow, investment banks, industry networks, and proactive outreach. Hundreds of opportunities are screened down to a handful.
02

Due Diligence

Deep-dive analysis into the target company's financials, operations, market position, management team, legal standing, and growth potential. This phase typically takes 60-90 days.
03

Structuring & Financing

Determining the optimal capital structure — how much equity vs. debt. Negotiating with lenders, structuring management incentive plans, and finalizing the purchase agreement.
04

Value Creation

Post-acquisition, the PE firm works closely with management to execute the value creation plan: cost optimization, revenue growth, strategic acquisitions, and operational improvements.
05

Exit

Realizing returns through an IPO, strategic sale to another company, secondary buyout (selling to another PE firm), or dividend recapitalization. Typical hold period is 4–7 years.
Returns Drivers

The 3 Levers of PE Value Creation

1

Operational Improvement

Cut costs, grow revenue, improve margins — the most reliable value creation source.
2

Leverage Paydown

Company FCF services and pays down debt over the hold period, accreting equity value.
3

Multiple Expansion

Exit at a higher EV/EBITDA multiple than entry. Market-dependent and less predictable.
Market Context

PE Market Benchmarks

Avg Entry Multiple

7–9×

EV/EBITDA mid-market

Target IRR

20–25%

Across most strategies

Hold Period

4–6 yrs

Close to exit

Leverage at Entry

3–5×

Debt/EBITDA