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Private equity, your company and the future: keep it simple and you'll keep it sweet There are benefits to business owners of working with private equity investors for partial exits. JEREMY FURNISS explains. IN OR out? It’s not always such a simple question. Entrepreneurs are increasingly selling stakes in their businesses to private equity (PE) investors. These partial exits can be used to take some cash off the table, secure additional funds to reinvest into the company fund acquisitions or buy-out a partner. Whatever the reason, private equity has a role and, for many, it’s a compelling source of external funding. To make a minority investment from PE work, entrepreneurs should consider the deal from the point of view from a PE investor, however, as well as their own. They’ll have to put in the prep
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and know what they’re doing to get the best deal… First, they need to be clear what they want to achieve. The reasons for entrepreneurs to bring in an external investor vary, but can be divided into two main areas: to provide capital to accelerate growth, or to diversify assets, create liquidity or personally “de-risk”. PE investment provides benefits in both cases. In the first instance, a mature but still growing company may need more cash than it can generate from operations alone. IMPROVING REVENUES PE can offer financing arrangements that will contribute
capital — as well as (potentially) support and counsel on improving revenues or implementing programmes that yield operational efficiencies. Most PE firms bring not only investors with money, but also experience. PE may help address a major issue for many entrepreneurs: that they have a considerable amount — often the majority — of their personal wealth tied up in the business. That might be necessary at the outset, but it represents risk in the long term. Recapitalisation should create liquidity and allow business owners to extract cash to secure their financial situation and/or to reinvest in the business.
