Who stands to gain from private equity? The simple answer is ‘everyone directly involved with a business’.

Who stands to gain from private equity? The simple answer is ‘everyone directly involved with a business’.

Private equity is one of the options available to business owners who are looking to protect the future of their company, including those not seeking a complete exit.

Rather than saying a sudden goodbye to a business they may have started from scratch, the owner can often join forces with an investment management firm that injects funds into a business with growth potential in return for an equity stake.

The capital raised can be used to drive growth with the ultimate aim of a positive return on the investment for shareholders over a medium-term period, perhaps five to 10 years.

So what are the advantages of private equity, and for whom? Here are the ways in which those with a vested interest in the company’s performance can benefit.

The shareholders

If there are multiple shareholders in a company, they may have differing views on how long they envisage remaining invested.

Private equity can enable shareholders to de-risk a portion of their stake by selling a percentage of their shares and keeping the remainder, potentially realising greater value in the future when the anticipated growth has occurred. A private equity firm will take into consideration future growth prospects, which will often result in higher deal values being paid.

Bringing a private equity firm on board can allow the owner to adjust their own level of involvement by promoting existing staff or hiring experienced management to help reduce the workload.

The employees

Besides the potential for promotion opportunities mentioned above, there are other ways in which staff can benefit from private equity investment in the company for which they work.

Greater engagement and motivation can be generated by private equity firms facilitating a Management Buy-Out to enable a change of ownership. The employees’ shareholding would incentivise them to drive future growth.

A sense of ownership for the workforce would mean they were aligned with the private equity firm in the quest to fulfil the mutual objective.

The private equity firm

Obviously, the aim for the PE firm is to realise significant returns by driving rapid growth in their acquisition within a relatively short timescale.

A typical target amount would be more than double the original investment.

Private equity firms may hold several investments within a given sector in order to increase their knowledge and experience of that industry, thereby creating synergies which benefit their portfolio as a whole.

The business itself

Following on from the previous point, the PE firm’s existing knowhow within a sector can also help its new acquisition. This could manifest in the way of additional resources, technologies and enhanced product development, as well as boardroom expertise.

Implementing clear and focused strategies, embraced by all stakeholders, would be especially useful in striving to achieve the stated growth targets.

In terms of resources, private equity firms often have access to specialists who can facilitate a particular requirement for an area of the business that may have previously been lacking that expertise.

If you are interested in seeking private equity investment for your company, you can arrange a confidential discussion with our expert team by calling 0161 258 0818.


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