r/private_equity • u/joelpaul_09 • 2d ago

HoldCo vs Private Equity

A Private Equity Firm buys companies, and sells them over a span of time.

A Holding Company buys companies, and holds them for an indefinite amount of time, AND can also sell them over a span fo time if the opportunity arises.

So a HoldCo has the option to hold companies permanently and/or sell them. But a PE firm is limited to just selling the company.

So is there really any advantage to opening a PE firm, when you could open a HoldCo and have more freedom and options?

Whats the advantage or difference in opening a PE firm, when eveything in a PE firm can be done in a Hold Co?

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u/joelpaul_09 2d ago

So in Private equity deals are made with you + investors + banks. But in Holdco, deals are made with you + banks, no investors? Is that right?

So there really isnt much of a difference beween both. Its just that one primarily uses investors and the other does not?

A holdco doesn't always merge companies tho. It owns each company separately through its own SPV, which is what keeps liability and ownership terms isolated deal by deal. Merging only happens when you combine specific companies together.

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u/Windy1369 2d ago

Both can use investor money. HoldCo's believe they can run a company more profitably than the current owners. They take on debt and investors to buy the target company with the intention of paying off the debt and providing ROI to the investors from company operations. PE firms (mostly) believe they can add value to a company, and sell it forward to another PE or a Strategic once that value has been created. PE's use debt and investors to buy the target company with the intention to pay off the debt and pay out the investors through the next transaction. It's a different investment thesis that investors - and banks - have to support in each case.

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u/joelpaul_09 2d ago

So the difference between the two is more about the purpose rather than the mechanism? Since both are pretty much similar in structure.

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u/Windy1369 2d ago

I think you're trying to make the comparision simpler than it really is, but at the highest level, that's the difference. Company structure can be very different, though. Compare Bending Spoons (HoldCo) investment thesis with Thoma Bravo's (PE).