---
title: "Private Equity"
url: "https://mahouse.world/glossary/private-equity"
type: "glossary term"
topic: "Private markets"
author: "Ihor Vlasov"
reviewed: "2026-09-20"
published: "2026-08-10"
---

# Private Equity

Private equity is the business of buying control of companies with a mix of a fund's capital and borrowed money, improving them over four to six years, and selling them for a multiple of the equity invested. The funds are raised from institutions, run by general partners paid a fee and a share of profits, and the model — leverage, operational change, a timed exit — has owned much of the payments industry since 2015.

**Also known as:** PE, Buy-out fund, Private equity fund

## Key facts

- **Used at:** buy-outs of mature, cash-generating companies; carve-outs from corporates; take-privates of listed companies; in fintech, payments processors, software providers and, more carefully, lenders
- **Binding:** the fund's limited partnership agreement with its investors (a ten-year life, a five-year investment period), and each deal's documents
- **Typical economics:** a management fee of 1.5–2% of committed capital and carried interest of 20% of profits above a hurdle (usually 8% a year); target returns of 2–3× and 20%+ IRR on each deal; global assets under management above $8 trillion across private markets
- **Typical fintech record:** the 2019–2023 wave — Worldpay (GTCR, 55% at $18.5bn), Nets (Hellman & Friedman, 2018), Nexi's consolidation with Advent and Bain, and dozens of mid-market payments platforms — plus the 2022–2023 take-privates of listed fintechs at prices far below 2021's
- **Parties:** the general partner (the firm), the limited partners (pension funds, insurers, sovereign funds, endowments), the portfolio companies' management, the lenders, and the buyers at exit

## How private equity works in practice

A firm raises a €2bn fund from institutions who commit capital for ten years. Over five years it buys ten to fifteen companies, each for 40–60% equity and the rest debt secured on the company. For each it installs a board, a plan and an incentivised management team, and pursues the levers that raise the exit value: revenue growth, margin improvement, add-on acquisitions, and debt paid down from cash flow. In years four to six it sells, returning capital and profit to the investors; the firm keeps 20% of the profit above the hurdle, which is where its partners' wealth comes from.

The return has three sources, and the honest analysis separates them. Leverage: the same growth on less equity is a higher return. Operational improvement: EBITDA that rose because the company got better. Multiple expansion: selling at a higher multiple than buying, which is the market's gift and not the firm's. A deal that made 3× from multiple expansion in a rising market is not the same as one that made 3× from EBITDA growth, and the firms that survived 2022 were the ones whose returns had come from the second.

In fintech the model fits payments — stable, cash-generative, consolidating — and fits lenders badly, because a lender's balance sheet is its business and cannot be levered twice. The regulator adds a fourth constraint: it approves the fund as a controller, asks about the debt, and caps the dividends that service it.

## Example

A fund buys a payments software company for €200m in 2020: €90m of debt, €110m of equity. It hires a CFO and a head of sales, buys two add-ons for €30m (funded by €20m of further equity and €10m of debt), migrates them to its platform, and raises EBITDA from €20m to €34m by 2025. It sells for €374m — 11× — with €70m of debt outstanding: €304m of equity on €130m invested, 2.3×, a 19% IRR. The attribution: €70m of the gain from EBITDA growth at the entry multiple, €34m from the exit multiple being one turn higher, and the leverage that turned a 1.9× enterprise-value gain into a 2.3× equity return. The firm's carry on the deal is about €33m; the limited partners receive €271m.

## Common mistakes

- Returns attributed to skill that came from the multiple, and a fund that cannot repeat them.
- Leverage sized for 2021 that has to be refinanced in 2023.
- Buying a lender as if it were a software company, and discovering the regulator's view of the debt.
- Add-on acquisitions bought faster than the platform can integrate them.
- Management equity that rewards the sponsor's leverage rather than the company's growth — and a team that leaves the day it vests.

## Related terms

- [Leveraged Buy-Out](https://mahouse.world/glossary/leveraged-buy-out.md)
- [General Partner](https://mahouse.world/glossary/general-partner.md)
- [Limited Partner](https://mahouse.world/glossary/limited-partner.md)
- [Carried Interest](https://mahouse.world/glossary/carried-interest.md)
- [Portfolio Company](https://mahouse.world/glossary/portfolio-company.md)
- [Growth Equity](https://mahouse.world/glossary/growth-equity.md)

— Ihor Vlasov, M&A FinTech Expert. Last reviewed 2026-09-20. https://mahouse.world/authors/ihor-vlasov