Explain the use of convertible preference shares in structuring a deal?

Convertible preference shares allow PE’s to protect their downside if a company goes into liquidation as they get the first right to recover their investment before that of normal equity investors. On the flip side if the investment is a homerun, if structured correctly - PE funds can also enjoy all the upside by converting their preference shares into normal equity shares. i.e. Preference shares allow Private Equity funds to have their cake and eat it too.


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