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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). http://www.shutterstock.com

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