Why consider private equity?
Fast-growing, ambitious businesses can benefit from private equity when seeking development capital to propel business growth.
What is Private Equity?
Private equity is finance provided in return for an equity stake (supported by loan notes) within a company. They are generally medium to long term investors, typically investing in companies between three to ten years, which means a commitment to build a lasting and sustainable value within the business.
Private equity raise their investment funds from institutional investors such as pension funds and high net worth individuals.
To generate returns for their investors, the private equity house looks to create value through supporting high quality management teams and a credible business growth plan, then realising their investment through a strategic trade sale, second round of private equity funding or public listing.
Is private equity a viable option?
Private equity is not appropriate for all businesses, but scenarios where it can work very well include:
- Management buy out - private equity can support a management team in an MBO transaction by providing capital required to buy out all or part of a shareholding.
- Shareholder de-risking - existing shareholders can partially realise the current value of their shareholding through a partial stake and 'roll-over' the remaining value into the business to participate in a future exit and upside.
- Founder shareholder exit - private equity can provide funding to enable founding shareholders to exit.
- Funding gap - the business may not be able to raise sufficient funds through traditional methods that their business plan requires. Private equity provides an alternative opportunity to raising the required funding.
- Accelerated growth - provides a financial structure to assist the company to accelerate the growth plan organically or through a buy and build strategy.
- Market opportunities - provide development capital to enable the company to take advantage of market opportunities such as technology / product development, introducing products to a market or increasing company capacity.