Is my business suitable for Private Equity investment?
There are almost as many types of Private Equity (PE) investors as there are types of business, so almost certainly the answer is yes. However, the most active – and reputable – types of PE firms are looking for strong, growing businesses which can demonstrate that momentum will continue and be accelerated with additional capital and experience; elements which the PE house would often look to provide.
A reputable PE investor will look to support and assist a management team in executing their business plan
PE investors consider a strong and credible layer of experienced management as critical – especially if the founder shareholders were looking to retire. This management team should be capable of driving the business on to its next phase of growth, and will be provided with an opportunity to invest in what is termed Sweet Equity. This will incentivise them with a meaningful share of any future sale proceeds.
Many business owners have heard alarming tales about PE investors introducing punishing financial targets. It is reasonable to say that many PE firms are primarily driven by financial return – it is quite literally their raison d’être in most cases. That is not to say that this means they are unsympathetic or combative. A reputable PE investor will look to support and assist a management team in executing their business plan by offering a combination of strategic leadership and industry experience, alongside facilitating access to additional capital, to support organic or acquisitive growth.
Some large, serial trade acquirers with a “buy and hold” strategy can become functionally similar to a PE firm, as they may possess a concentration of capital, and wish to deploy it in purchasing new assets (businesses, in this case) to secure a return and increase overall capital. These organisations can be great homes for family-run/owner-managed businesses, as they often have a preferred sector niche and are comprised of a number of similar businesses. With this type of buyer, the future can become one of increased opportunity, with the safety net of the support of the wider group.
There are, of course, other types of PE firms in the market, including turnaround specialists and distressed business acquirers, who may employ more aggressive business tactics in order to make a return. Turnarounds or distressed sales are not something we specialise in at BCMS, as our clients are, by their nature, successful businesses with further growth potential.
Others also asked
- Why and when do earn-outs or other deferred payments feature in business sale transactions?
- What is Sweet Equity and why is it important in a business sale?
- Should I incentivise my management team before commencing a business sale process?
- What is the difference between Heads of Terms (HoTs) and the Share Purchase Agreement (SPA)?
View recent BCMS transactions