Part 1 - What Makes a Good Private Equity Investment?
What Makes a Good Private Equity Deal?
Private companies can carry more risk as an investment due to the lack of information available to public investors. This is part one of a two-part series that breaks down important factors to look for when evaluating a private equity investment.
Important Factors to Consider
Some important factors to consider when evaluating private companies as potential investments are:
- Stable and Recurring Cash Flow - Positive free cash flow that is stable and recurs year after year
- Value Creation Opportunities - Done through operational improvement, multiple expansion, or deal structuring
- Sustainable Competitive Advantage - When buying a company with a competitive advantage, investors should fully understand the systems, processes, patents, people, or other sources of the competitive advantage and ensure it will continue as the company matures
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