Private equity can provide business owners with the option to realise some of their net worth tied up in their business whilst retaining a meaningful stake and the opportunity to benefit from further growth in shareholder value.

Looking to accelerate growth whilst at the same time allowing business owners to de-risk and realise value in the short term need not be mutually exclusive. Private equity investment can offer shareholders the opportunity to realise a significant amount of value they have created whilst continuing to retain a meaningful stake in the business and benefit from future growth.   

Whilst providing existing owners with the opportunity to realise value, many investors will want existing owners, and the wider management team, to retain a meaningful equity stake in the business to ensure all interests are aligned. This provides the investor with the comfort that key management remain confident in the future of the business and are incentivized appropriately to help deliver continued success. 

Private equity can therefore play a significant role in helping shareholders realise value in the short term as well as helping create further value in the future through accelerating growth.

How Private Equity can add value to a business

Alongside funding, Private Equity investors will use their significant experience and business networks to support and add value to their investments with a view to accelerating growth and creating value for all shareholders. Key areas in which companies can benefit from the involvement of a private equity investor include:

1. Capital: private equity provides access to capital to help drive growth initiatives such as expanding into new markets, developing new products or services, and investment in new technologies and people.
2. Equity incentives: many private equity investors will put in place equity incentives for those members of the management team deemed key to the future success of the business. As well as incentivizing key management it can help create a clearly defined management succession strategy for a future exit.
3. Knowledge: private equity firms have a wealth of experience in helping companies achieve their growth potential and can provide significant support in key areas including strategic planning, corporate governance, marketing support, operational and efficiency improvements, and ESG.
4. Partnerships: private equity funds will have extensive networks of contacts that can be extremely valuable to businesses as they look to grow. Investors can provide access to industry experts, use their network to help introduce new business opportunities, and facilitate discussions with debt providers who can also help support growth ambitions.
5. Credibility: having a private equity partner in place can help enhance both the reputation and credibility of a business. This can be extremely beneficial across a range of areas such as securing additional funding from other investors or banks, winning new customers, and attracting and retaining quality staff.
6. Professionalism: through years of experience, private equity support can help entrepreneurial business owners professionalise through appropriate operational and corporate governance procedures to help transform their business and ensure they are well-paced to take advantage of growth opportunities.

It's more than just the money

Where a business is considering taking on third party investment, we would always advise clients of the importance in considering the points outlined above as part of their overall decision-making process. Business owners and management teams should be clear as to what they are looking for from a private equity investor and to spend time finding the right partner to help the business achieve its strategy.

There are a large number of private equity funds in the UK, and investors target different parts of the market, whether it is the size of a business or specific sectors. Working closely with your advisor will help you identify those funds which may be suitable for you and your business as well as helping you in preparing your business for discussions with potential investors.

If you would like to discuss this further, please don't hesitate to get in touch with me, or a member of the Corporate Finance team.