Management buy-outs and management buy-ins backed by private equity investment can offer exit solutions whilst maintaining sustainable growth
Private equity describes a method of funding mature companies that are seeking to develop further. Investors may be individuals of high net worth looking to acquire equity in a variety of companies, or institutions that put money into private companies via specific equity funds.
Investments are generally made for a period of between four and seven years, with a return on investment/exit strategy in the form of:
- Generation of additional cash flows over the life of the investment
- Operational changes that result in increased revenues through higher sales levels, increased efficiencies and improved margins
- Onward sale of the business at a profit generally as a result of the growth of the company
Private equity investment over the long-term, plus the united aim of management and owners to create value and drive business growth, is a strong combination that enables companies to fully achieve their potential.
What type of company is targeted by private equity investors?
Essentially, value creation is the main aim of a private equity investor. The type of company under their scrutiny would need to have a strong existing management set-up plus a detailed, coherent business plan for growth.
Providing value to the company begins even before the financial investment is provided, however, as the extensive due diligence process is valuable simply as a stand-alone exercise.
Although carried out for the benefit of investors, this process can uncover inefficiencies and organisational burdens that are ripe for change, and sets the scene for strong development.
What value can private equity investment bring to a company?
Having the backing of a private equity investor brings with it considerable benefits. Value can be added in numerous ways, including:
- Identifying potential market leaders in the early stages and assisting in strategic growth
- The combination of business expertise and deep pockets provided by equity investors
- Specific goal-setting and tracking procedures, plus incentive schemes for attaining these goals, all aid the company’s growth plans
Private equity investment can offer strong financial backing and management expertise in order to achieve significant growth.