Why would a private equity firm buy a company in a “risky” industry, such as technology?

Although technology is more “risky” than other markets, remember that there are mature, cash flow-stable companies in almost every industry. There are some PE firms that specialize in very specific goals, such as:

• Industry consolidation – buying competitors in a similar market and combining them to increase efficiency and win more customers.

• Turnarounds – taking struggling companies and making them function properly again.

• Divestitures – selling off divisions of a company or taking a division and turning it into a strong stand-alone entity.

So even if a company isn’t doing well or seems risky, the firm might buy it if it falls into one of these categories.