Private equity investment

DANIEL DICKSON of PKF offers some tips for business owners on how to attract the interest, and funds, of private equity investors

THE private equity industry has been increasingly in the headlines over the past few years, but how do you make your business attractive to private equity players and in turn maximise the value of your business?

Attracting private equity firms is not like taking part in an episode of Dragons Den. Making investors bite takes more than just having a good idea, answering a few questions and then waiting until they send cash your way. In some cases, it can take years before a company is ready.

Although trade buyers remain keen to acquire good businesses, private equity is taking an increasing role as a preferred buyer or investor when shareholders are looking to exit, or a business is seeking development funding.

Private equity firms are essentially investment companies that provide finance in a wide variety of situations and for a broad selection of businesses, ranging from start-ups to large, mature quoted companies and everything in between.

A strong management team, growth potential or a proven track record in delivering profits, and a viable exit plan are all key to successfully attracting private equity investors. Specialist input from experienced advisers, such as PKF, can also be critical.

Management: Private equity firms look closely at the skills and capabilities of the management team. A common reason for private equity players pulling out of a deal is if they consider the management team to be below par or incomplete.

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Growth potential or maintainable earnings: Many people believe that private equity firms are only interested in fast-growing companies in high-growth sectors. Whilst this is true for some firms, there are plenty that invest in solid, dependable companies that have a consistent level of profits, year-in, year-out. The most important factor is being able to defend profits to reduce the risk of these falling in the future.

An exit plan: Private equity houses (and the remaining shareholders) make money when they exit from their investments. An exit will usually come in the form of a trade sale, a secondary management buy-out or a flotation. It is important to have an exit plan in place before starting a dialogue with private equity firms so that they can see their exit opportunity, typically within a three- to five-year timeframe.

Get good advice: You should appoint an adviser with strong private equity experience and connections who can give an honest, professional opinion on the status of your business, whether it is investment ready or not, and make more accurate forecasts about your financial prospects.