Private equity (PE) is an investment fund, typically organised as a limited liability partnership, which pools money from investors to invest minority or majority stakes into fast-growing and/or differentiated entities.
The PE market is populated by experienced industry professionals who have successful track records in growing and realising corporate value. They exist to make significant returns to their investors, which more often than not, include pre-existing owners and management teams.
An effective resource for both stable and fast-growing businesses, PE can enable a well-invested company to both de-risk and accelerate growth, moving onto the next stage of the business lifecycle many years ahead of schedule. The professionalisation/corporatisation of businesses can result in the entity benefitting from a greater critical mass, which can yield significant multiple arbitrage – a large business doesn’t just generate a higher EBITDA, the multiple applicable is higher, creating exponential value growth.
PE can provide surplus capital to deploy into a business which can be used to accelerate growth ahead of organic timescales. In addition, PE typically has a background in the sector into which it is investing, meaning that the company receiving the investment can benefit significantly from PE’s prior industry experience and expertise. The discipline instilled by a PE house is also beneficial to the organisation, meaning improved management information, processes and controls, which can result in a better-run and de-risked business.
There are many benefits to partnering with PE. A shareholder can release value locked up in their business, whilst continuing to run the business and still holding a majority position; why wait until retirement to realise all of the value in your asset? PE will bring capital to the table which can be put to good use by the business to either grow, launch new products or branch out into new geographical areas. Often PE’s wider portfolios can lead to useful introductions and new sales leads.
PE’s sole purpose is to grow value. By partnering with PE, even though a slice of the business will be owned by them, the growth in the remaining stake is often turbo-charged, meaning the ultimate value-outcome is that much higher for business owners.
Funding from PE comes in various shapes and sizes in terms of quantum invested, sectors and situations. This drives differing investment structures and return profiles. It often works as development capital, but can also help where shareholders have differing objectives as it can act as replacement capital. Having successfully completed ten deals in 12 months, all in different sectors, the corporate finance team at Quantuma is in an ideal position to navigate through a transaction and achieve you or your client’s ambitions. We work with business owners to identify acquisition targets, raise funding, or realise the value tied up in their businesses by running a sales process.
If you (or your client) are a successful, entrepreneurial business looking to explore growth opportunities or release value, we would be delighted to share our expertise with you over a coffee.