Research On Private Equity Financing Strategy Of FANGHUA Co.,Ltd

In recent years, with the deepening of the reform and opening up in China andthe rapid development of the socialist market economy, private enterprisesrepresented by the individual and private capital which have been rapidly developed,have become an important part of our socialist market economy. In the nationaleconomy in our country, small and medium-sized enterprises occupy an importantposition. They have promoted the growth of the national economy, and have playedan inestimable role in stimulating private investment, relieving employment pressure,and optimizing economic structure. However, the development of private enterpriseshas been limited for a long period of time by national policy, market environmentand financing and so on. Especially the financing problem has been a key factor oflimiting the development of private enterprises. Along with the economicglobalization market competition is more and more fierce, and difficulties infinancing have become the bottleneck of restricting the development of small andmedium-sized enterprises, which have brought a lot of uncertainties to the survivaland development of these enterprises. So it has become increasingly difficult to meetthe needs of the development of enterprises only relying on bank loans, anddiversifying the financing channels to small and medium-sized enterprises is of thegrowing importance.Private equity is also referred to as private equity capital or unlisted equitycapital, and the private way of raising capital is relative to the public way. Privateequity investment refers to investment in equity of private enterprises (i.e. unlistedenterprises) in private way.In the process of investment, institutional investors should design future exit mechanism in advance which means selling shares heldwhen earning a profit in the future by several potential options including enterprisesgoing public, merger or management repurchase,. Throughout the history of privateequity, this new way of financing in its short history, has made an importantcontribution to solve the financing bottleneck of enterprise, especially for small andmedium-sized enterprise financing. It has unprecedentedly shown great potential andvigorous growth. Private equity financing as a new financing system has becomemore and more the main financing ways of small and medium-sized enterprises.Changchun Youth Electronics as private enterprises was founded in2006, and isspecialized in development, production and sales of liquid crystal materials, liquidcrystal displays, LCD module and electronic components.The company mainlyadopts TN/STN technology, and its products are mainly used in the U shield, ordermachine, MP3, calculator, electronic dictionaries and other goods display andmodule. The company enjoys a high market share, and has an important status in theindustry. Due to the current small production workshop area, which can’t meet thedemand of the rapid growth of business, the company has purchased new land forexpansion planning to finish construction of the new plant and the installation anddebugging of the new production line by the end of the year. After the expansionproject, the product output will be improved greatly. However, the expansion projectof the company has encountered bottleneck problem of funds. As a private small andmedium-sized enterprise the company has great difficulty to obtain debt financing oflower cost. Whereas private equity financing can not only solve the problem of fundsfor the company, but also help the enterprises to standardize internal governancestructure, improve the management level, establish a modern enterprise system andpromote the rapid and healthy development of the company.In this paper, according to the actual situation of the company, the authorestablishes practical and feasible schemes for the expansion project of the company planning to acquire5million yuan through private equity financing. Furthermore,the author elaborates on how to choose investment institutions, reasonably assessenterprise value, negotiate financing terms with investors, and control financing risk.A series of problems with financing faced by private enterprises are analyzed, Andthe author finds the causes and puts forward reasonable countermeasures in order toguide the practice of private equity financing for private enterprises.