Don’t let the headlines scare you off private equity…
The first reaction we often get when we mention private equity to our clients probably lies somewhere between fear and disdain. It’s not hard to understand why, when the only news that ever reaches most of us about private equity is distinctly negative.
In recent weeks we have seen headlines criticising Greybull for their management of Monarch Airlines, with perhaps as much ire directed at the secrecy of the company, as the Telegraph commented on 2nd October, “Little is known about the company, which pours family wealth into risky deals. On Monday morning, the firm’s website simply consisted of a statement apologising for the collapse of Monarch – giving nothing away as to who they are or what they do.”
This has been closely followed by Guy Hands and the debacle at Four Seasons Healthcare with a somewhat inflammatory heading on 21st October, “Elderly pay price of private equity gamble on care”, followed by commentary in the article questioning the structure of the deal, “like so many private equity-owned companies, the chances of surviving a downturn are always much greater when profits aren’t being swallowed by expensive debt.”
But as ever, headlines don’t always tell the full story. Private equity is a term used to describe a whole manner of different types of investment business – by definition if it’s not money raised on the public markets, everything else is private. Both of the above are examples of private equity transactions at the larger end of the market, where the businesses were struggling and the private equity funds thought they could take advantage of the opportunity. Yes they were looking to make a return on their money, and no they probably didn’t have much empathy with the businesses they were investing in.
But…. Keep reading, there is another side to private equity. At the mid- lower end of the market there are private equity firms, who of course are still looking to make money, but realise that the best way to do this is to work with the management teams they are backing. They only make money, if the businesses they invest in succeed. They work closely with management, and as far as possible invest alongside management to ensure they are all aligned. Success is based on growth and innovation, not debt loading and financial engineering.
For deals of value £10-50m there are now a good range of private equity houses looking to provide growth capital, fund a management buyout, or offer a vendor a partial exit so he or she can de-risk a little but keep driving the business. They are mostly generalists, looking for an attractive opportunity with good economics; they are not looking to run your business for you. However, there are some that are better suited to certain types of businesses, and your advisor will help you make those selections.
Private equity is not a solution for all businesses, but it is well worth a look. So next time your advisor mentions it, ask them some more questions. Find out what it’s about and how it might work for you. If you are worried, how about having a few general conversations before you start any proper process… that way you can see and hear for yourself. Honestly, don’t believe everything you read in the paper…. Private equity isn’t all bad!
About Forward Corporate Finance
At Forward, we help owners and managers of businesses to plan for, and achieve their strategic goals. Whether it is a business sale, structuring and completing a management buy out or making a strategic acquisition, we are committed to delivering success for our clients.
For more information please contact:
Sarah Moores, Director
Tel: 01279 215 558
Mob: 0780 961 0401
Email: sarah@forwardcf.co.uk