One of the key features of a private equity deal is the use of leverage. When Henry Kravis first started buying companies in the early 1970s, he would deposit the share certificates from one company with a bank as security for the money raised to buy the next one.
Within a very short space of time, however, each deal became self-standing, so that it was the assets acquired in that deal that were themselves used as security for the finance raised to fund it. This was one of the fundamental reasons why the industry in the UK lagged behind the US at the outset, since reform of UK company law was necessary to lift the restriction on financial assistance for private companies to enable such techniques to be used.
