Private equity firms establish funds (typically limited partnerships) that raise capital from investors (traditionally large institutional investors—who are referred to as limited partners, or LPs). The LPs provide the capital for a limited period of time and the private equity firm’s managing partners—known as general partners, or GPs—invest their own capital along with the capital raised from investors. The general partners make equity investments for the partnership in companies they believe can achieve significantly greater growth and profitability with the right infusion of talent and capital.

Private equity partnerships typically provide for a three to five year investment period (during which the fund may make new investments) and a three to five year portfolio wind down phase where the partners seek to liquidate their investments. Because the exit timing is predetermined, depending upon prevailing market conditions, a traditional private equity fund may need to sell an investment in poor market conditions. Also because of the time limited nature of these funds and their self liquidating nature, a prospective portfolio company cannot be sure that the fund will be in business after several years (because the private equity fund is also dependent upon its ability to raise new money to survive, otherwise key people typically leave seeking greener pastures elsewhere).

Hector Capital is, of course, organized quite differently as we are not atypical PE fund.

Private equity often is confused with hedge funds. But the two forms of investment differ in important ways: Private equity seeks to create value over the long-term; hedge funds typically have a much shorter time horizon. Private equity funds are typically organized with 10 year lives, so they cannot be forced to sell an investment within those 10 years. Hedge funds are pools of capital that usually invest in publicly stocks, bonds, or commodities. Typically, hedge funds do not focus on investing in private companies – although the allocation to private investments has picked up tremendously in recent years . Most hedge funds are structured so that their investors can withdraw capital on relatively short notice and, as a result, many conservative head fund managers believe that private equity investments aren’t suitable for hedge fund partnerships. Some hedge funds entered the private equity business, providing loans and equity to mid-sized companies; but this has typically been a “side line” compared to their main stay of trading stocks, bonds and commodities. Indeed, many of the most active privately investing hedge funds were caught in a liquidity squeeze in the Great Recession.

Private equity funds invest in companies with the intent of owning and operating them for several years or more. The goal is to grow the companies and strengthen their performance. Private equity firms typically create value by improving the operations, governance, capital structure, and strategic position of the companies in which they invest.

In contrast, hedge funds are a loosely-defined category of investment pools that, like a retail mutual fund, principally invest in publicly traded securities, currencies or commodities. While most mutual funds typically own “long” positions in securities, (that is, they own the security with the hope it will rise in value), a hedge fund may take “short” positions (betting that a company’s stock price will fall), and engage in many more complex trading strategies, including futures trading, swaps and derivative contracts. Almost all hedge funds use some form of leverage which further increases the risk associated with making private equity investments.

Investment banks are agents or advisors hired to raise capital. Investment bankers are paid a fee for arranging the capital source. Typically the investment bank does not invest its own capital in the transaction; it merely serves as an agent. While some investment banking firms have private equity funds that are affiliated, this is not their main business. Private equity firms invest their own capital and most are not involved in the investment banking business.

A merchant bank is typically defined as an investment bank that occasionally invests its capital and that of selected clients in some of its banking transactions. This was especially true of long established banking houses in Europe.

During the credit boom that preceded the Great Recession, several new breeds of private investors sprang up. All of these groups shared a common trait: they had no money. These groups were typically created by former investment bankers who had relationships with private investors who wished to invest in private equity situations. These private investors had no interest in “getting their hands dirty” and instead sought to hire someone to source and close new private equity investments on their behalf. Nevertheless, there was no formal fund in place and any private equity investment by the group was subject to each member’s consent to make the investment. As long as performance met expectations or the investors remained attracted to risk assets, these groups could continue to invest. The Great Recession was the undoing of most of these arrangements which went under the ironic name “fund-less sponsor” or the more accurate “pledge fund”.

Generally a pledge fund or fund-less sponsor is a loose affiliation of investors who co-invest in transactions that the investors choose to invest in. Some of these groups hire a manager and the investors share the cost of the manager; others work under a less formal arrangement whereby investors share transactions on a deal-by-deal basis and each investor chooses whether or not to participate in each deal.

A mezzanine fund is a debt fund that generates substantially all of its returns through above market interest rates (typically 12% to 14%). These loans are typically subordinated in liquidation preference to existing banks (hence the term subordinated debt), but most mezzanine funds seek a junior lien on the assets. These fund managers think and act like lenders (many adopting the classic banker’s law: “your first loss is your best loss”). Since the loan is “above” the equity holders in a liquidation but below the bank debt it is sometimes called “mezzanine” debt referring to the layer above the bottom theater seating but not at the top layer of seating either. Most traditional private equity funds including venture capital, growth capital and buyout funds do not structure their investments as loans and think more like owners of the business rather than lenders.

There are no rules to this thing. But, usually, we would take a look at opprtbunites taht would meet some of the following criteria:
Growth equity
Acquisition capital
Pre-IPO financings
Selective restructuring
INVESTMENT CRITERIA/SIZE
Investment Size: $10-75 million
Minimum Revenue: $20 million
Minimum EBITDA: $4 million
Strong management team
Recurring revenue business model with defensible barriers to entry
INVESTMENT STRUCTURE
Custom, flexible investment structures including:
– Mezzanine Debt
– Preferred Equity
– Common Equity
– Other Forms of Non-Control Capital
INVESTMENT ROLE
Minority stakes/investor
Co-investments

TARGET INDUSTRIES
Business services
Healthcare services and technology
Software and technology-enabled services
Telecom and communications
Data, information, and marketing services
Transportation and logistics
Consumer services
Environmental Services
Commercial real-estate

Contact: Please see contact page link Services

We are neither an M&A bank, nor do we have a capital market license, as we do not need one. We are registered company in USA, and we remain fully compliant in our area of activity. We are an investment company, and we have a consultancy arm to serve our own internal companies. We extend those services to other companies for a fee, and it’s a separate line for revenue for us. This also helps us maintain a relationship with corporations that add intangible value to our portfolio company. We partner with license banking and advisory companies to work along with us in areas that require regulated activities such as M&A advisory. We maintain strict internal compliance, and our activities follow the law of the land under which we perform our activities. We also make sure that we remain complaint with local capital market regulations and securities laws of the land.

We will support you in the following (but not limited to) processes during M&A activities, and our post and/or pre M&A services may include:
Business assessments to facilitate the pre-acquisition planning process and financial DD.
Detailed planning to define clear objectives, activities, timelines and performance measures (post M&A).
DD and negotiation with advisory bank involved.
Pro forma financial modeling to determine financial goals and to reconcile actual results.
Project team management to assist in facilitating team goals, objectives and activities.
Performance monitoring to reconcile targeted objectives to actual performance and follow-up on activities to meet longer-term goals.

And, if you’ve got any further questions and/or concerns, please don’t hesitate to contact us (go to “contact us” page).