Most agriculture industry investors are familiar with how to sink their money into publicly traded farming companies. However, they may not be aware of how to invest in non-public farming companies. This type of investment requires a lot of cash and some patience, but it can be done.
Private equity investors make a practice of buying out private companies. Private equity assists companies that are in need of financing. There seem to be more deals involving these private equity firms cropping up in recent years. It is important to understand the role of private equity investors when it comes to business development.
The term private equity represents an investment in company stock that is not traded on a public stock exchange. A company may not have publicly traded stock because it is new and does not have a profit or revenue history. There are also mature companies that elect not to trade their stock on public markets. They may not wish to adhere to more stringent reporting requirements. In some cases, the company’s owners may want to retain their complete ownership of the entity.
Venture capitalists invest in new businesses within the initial operating stages. Small companies that lack resources to borrow money from lenders may instead obtain mezzanine financing to finance their growth opportunities. Leveraged buyouts occur when investors purchase a controlling interest of a company using borrowed money. Private equity groups can find additional investment opportunities in the form of bankrupt companies.
A drawback to investing in non-public companies, including those that engage in farming, is the long investment time horizon. Investors may not be able to withdraw the money invested for ten years or more. Investors may also be asked to initially provide partial funding and later commit the remainder of the money. Private equity groups need to not only increase the value of their investments, they must determine how to realize the investment gains that they have created.
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