Many well-known businesses are owned not by the share market, but by private equity firms. Here’s how private equity works, how it makes money from buying and selling companies, and why it’s controversial.
Private equity refers to investment in companies that aren’t listed on a public share market.
Private equity firms raise money from investors such as super funds, pension funds, insurers and wealthy individuals, and use it to buy stakes in companies, often taking full control.
Their goal is to make the business more valuable and sell it, usually within three to seven years, either to another company, another private equity firm, or by listing it on the share market.
How a buyout works
The most common type of deal is a leveraged buyout. The private equity firm buys a company using some of its investors’ money, plus a large amount of borrowed money. The debt is usually placed on the company being bought, which must use its profits to repay it.
Using debt means the firm needs to put in less of its own money, which can magnify returns if the business does well.
After buying a company, private equity owners often replace management, cut costs, sell off parts of the business, merge it with competitors or invest in growth.
How they make money
Private equity firms usually charge investors a management fee, often around 2% a year, plus a share of profits, typically 20%, known as carried interest.
Australian examples
Private equity firms have owned many well-known Australian businesses over the years, including Myer, Dick Smith, Healthscope, Virgin Australia and Bain Capital, which bought Virgin out of administration in 2020 before relisting it in 2025.
Global firms such as KKR, Blackstone, Bain Capital and TPG, along with Australian firms such as Pacific Equity Partners, are active here.
Why investors like it
Super funds and other large investors put money into private equity because it has historically delivered higher returns than listed shares, although the returns are harder to measure and investors usually can’t get their money out for years.
The criticism
Critics argue private equity owners can load companies with debt, cut jobs and services, and pay themselves large fees, leaving businesses weaker. Some companies have collapsed after being sold by private equity, such as Dick Smith, which collapsed in 2016 after being refloated on the ASX.
There are also concerns about private equity ownership of essential services, such as hospitals, childcare and aged care.
Supporters say private equity can turn struggling companies around, and that owners focused on long-term value have strong reasons to build businesses up rather than run them down.
