Private Equity Investment

M&A and Strategic advice from business owners to business owners

Is private equity investment right for you?

If you choose to receive equity investment from Private Equity, there are many things you will need to consider ahead of the sale.

Equity investment can be for various reasons including:

  • Accelerated growth and raising capital for organic growth above the availability of debt options
  • To help fund acquisitions
  • To exit and reward key management
  • Providing the business with additional expertise and an improved ability to attract staff, funding and new customers

As the level of capital injected by Private Equity is greater than from a bank alone, they will require an equity stake in the business, which can range from minority to majority equity depending on the Private Equity house.

There is a wide range of transaction structures possible from equity investment, with many complexities and nuances.

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The benefits of private equity investment?

When you sell shares in your business to a private equity, it will give you access to instant cash. This can provide you with the platform you need to achieve your growth plans.

The money can be used to launch new products, hire more staff and upgrade your systems.  

Another benefit of receiving private equity investment is the experience you can call upon from the investors.

Due to the nature of what they do, private equity firms will have lots of experience in guiding businesses through growth and can guide you through the process, avoiding any issues that might come along the way.

As well as having experience in dealing with business growth, private equity firms will also have a wealth of connections that you will be able to call upon.

They will have contacts across all areas of business, including recruitment and development. You will be able to call upon these contacts to support your own business growth.

What do you need to consider with private equity funding?

While private equity is a great way to take your business to new heights, there are factors that you will need to consider ahead of making your final decision. Things to consider include:

  • Securing private equity funding means giving up a portion of the shares in your business. Depending on the amount of shares sold and their management style, they could try to influence business decisions.
  • Most private equity firms will have a three to five-year time period in which they expect to realise their ROI. This can lead to pressure being put on your staff to deliver the results the investors are seeking.
  • You may also be subject to interest payments or management fees depending on the conditions of their investment.
  • It may also impact your ability to exit the business, as the private equity firm will have input into the riming and terms of an exit or sale.
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What’s next?

The first step to any kind of investment is for you to decide how much of your business you want to sell and the purpose for raising capital.

You will also need to prepare your business for investment, this means making sure you have accurate data for cash flow and that your reporting systems can withstand the due diligence that investors will do ahead of investing.

We also suggest speaking with a tax expert to understand the tax implications that come with the investment.

If you’re thinking about getting investors for your business, get in touch with us. We have strong relationships with successful investors all over the world, across various sectors.

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