Discussion: Explain the impact of private equity firm acquisition of manufacturing and retail firms

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Private equity in companies in the field of manufacturing industry or for retail firms in many cases are generally conducted in order to buy companies and then improve their operational efficiency and also to create a new line of business, and then sell it back again at a profit. In most cases, these companies are not generally owned by the same individual companies that are investing in them. Sometimes, it will be an individual company, but usually it will be a group of individuals who are collectively invested in the business or in many cases there are other companies that are investing in the same business. In the case of manufacturing companies, the acquisition of a retail firm is more interesting for the reason that the retail company will be able to have a larger reach, allowing the manufacturing company to increase its share of the market. Furthermore, this acquisition can influence the manufacturing company by having a direct influence over the retail company. Through this connection, it will be easier for the manufacturing company to gain sales. These are just a few impacts that would be done on the manufacturing and retail companies due to the acquisition of a private equity firm (Bernstein, 2019).

The private equity firm may also have an influence over the manufacturing company by using it to increase the supply to other markets that are not related to the manufacturing company. Through this, the manufacturing company is able to have a larger number of products that would be given out to the retail customers. It is also possible for the manufacturing company to get a bigger share in the market as the private equity firm becomes more influential than before. This will also have a better return of investment for the manufacturing company. In the context of private equity, some manufacturing companies can be very beneficial and successful, however the reason why these companies are successful is usually because of the high efficiency and productivity of the company as a result of their capital investments into the production processes.  As a result of private equity firms, these manufacturing companies have been able to make much larger profits (Davis, 2019).

 

References

Bernstein, S., Lerner, J., & Mezzanotti, F. (2019). Private equity and financial fragility during the crisis. The Review of Financial Studies, 32(4), 1309-1373.

Davis, S. J., Haltiwanger, J. C., Handley, K., Lipsius, B., Lerner, J., & Miranda, J. (2019). The economic effects of private equity buyouts (No. w26371). National Bureau of Economic Research.