Private Equity put simply is about buying a stake in a company and then working with that company to growth its value over the next 3-5 years. There are two principal reasons business owners turn to private equity – firstly to supercharge the growth of the company, and in doing so, the value of the business and secondly to orchestrate a change in the ownership of the company.
With private equity you get an active board member. This person will be very focused on understanding and building on the key value drivers of the business. This will help the company cut out the “noise” and stay really focused on the end game and the execution to get there. The private equity investor will, with the management team, make sure the big decisions are right and that the appropriate resource and monitoring is in place to maximise the business potential.
From the outset of a private equity transaction, an agreed plan will be developed with the management team so that a shared vision of what the business needs to look like is created so there is a real correlation of ambition. The private equity investor will also help bring best business practice to the company with the experience of sitting on a number of boards of companies, you can expect access to wider networks, specialists, advisers and new business leads from your private equity investor – not just money.
Private equity also loves to “build”. Taking private equity into your business brings capital and expertise to scale-up through acquisitions as well as executing on organic growth plans. This might be buying that nuisance competitor, or extending the capabilities of the company – with the common theme that it accelerates the development and value of the business with a significant event.
To illustrate, Wavenet, our investment in the unified communications space, has made three acquisitions in the space of 12 months to build its geographic coverage and extend its capabilities. RS Connect, our investment in the telematics market, has made two acquisitions and grown rapidly in the space of two years from a sub £10m turnover company to one that will deliver over £20m turnover this year.
Orchestrating a change in ownership of the business is the second main reason for a private equity deal. Often private company owners reach a point where they may want to de-risk their personal financial position as their ownership of the business is their principal source of capital. They may also want to take out a business partner who wants to retire or who is no longer adding value to the company. Or the owner may want to pass on the ownership and running of the business to the management team that have helped get the business to where it is.
Looking at the past five investments made by Beech Tree, two have originated as a result of an owner buying out a business partner and the other three have stemmed from an owner wanting to de-risk financially as well as having an ambition to grow the business at an even faster rate in the future.
So private equity really can be a positive force in any company with ambition. The trick for any business owner is to pick the investor who they think they can work well with over a number of years and one who shares the ambition to build the company into a fantastic stand-out business in its industry.
If you are a business owner or CEO of a fast growing company where the above resonates and are interested in learning more about how we work at Beech Tree Private Equity, then please do contact us.