Yorkshire and North East Dealmakers Guide 2016 - 7
GROWING YOUR BUSINESS
7
Striking gold: why private
equity makes a difference
©shutterstock.com
Private equity came to the fore in the wake of the recession, plugging the gap when the banks put the brakes
on lending to businesses. We look at how and why private equity is often a crucial part of funding growth
P
more readily again, but most analysts
will say the UK is still over-reliant on
traditional bank debt. While many
entrepreneurs might be wary of giving
up equity, fearing a loss of control over
decisions, there are many others who
have taken on equity investment and
believe their business would never
have achieved the scale and vision
without it.
WHAT DO PRIVATE EQUITY
FIRMS INVEST IN?
Private equity finance is provided
in return for an equity stake. Firms
typically look to invest majority stakes
in underperforming companies that
have the potential for high growth.
The private equity investor will often
have a strong track record in particular
sectors and will be able to see clearly
the relative strengths and weaknesses
of the business, how it can improve
HOW SHOULD AN OWNER
APPROACH PRIVATE
EQUITY INVESTMENT?
Before entering into a deal, businesses
need to do their research on the investor. All private equity firms will have
information about their other investments
and how they are performing. These
portfolio companies will give a good
indication of whether the private equity
firm is a good 'fit' or not.
A business owner should look for
investors who would not only support it
but help it get to the next level. Some
owners will feel uncomfortable with
losing too much control, so the level of
responsibility and control needs to be
carefully considered by all parties.
PRIVATE EQUITY
rivate equity finance has been
a firm feature within deals for
for a few years now, with private
equity firms funding businesses in all
regions of the UK. This resurgence
continues, with firms providing not
only cash but expertise in getting the
company's growth curve going in the
right direction.
According to the Centre for Management Buyout Research, in the first
quarter of 2016 there were 42 deals
worth £2.9bn. In the second, there
were 46 deals worth £3.1bn. And,
despite the Brexit vote, commentators
are expecting the volume of private
equity deals for the rest of 2016 to be
somewhere near to these figures.
Yet for many business owners in
the UK, especially those running small
companies, private equity remains off
the radar when looking for investment.
True, banks are beginning to lend
and what the investment will bring to
the company in terms of restructuring
the management team, investing in
equipment or targeting new markets.
A common strategy is growth through
acquisitions.
Growth is achieved by working with
the company's management team to
improve performance and strategic
direction, making complementary
investments and driving operational
improvements. Private equity firms
invest in all sorts of companies in
many different sectors and stages of
development. Sometimes it is at startup stage, but the majority of investments are in management buyouts
and buy-ins, ranging in value from £1m
to more than £100m (although rarer).
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