Over the last few years it would be fair to say that private equity investments really have come into their own. More and more companies dabbling in this financing seem to be on the scene, while the figures are suggesting that more are also pledging their money.
One only has to look at Sun Capital, led by Marc Leder, to see this. Their portfolio has grown considerably over recent times, and they are not the only ones.
Bearing this in mind, let’s now take a look at some of the reasons private equity investments are becoming so common and ultimately, more businesses are looking out for them.
Private equity firms have a track record of creating value
Something that pretty much every private equity firm has in common is that they create value. This is the bread and butter of their business; if they can’t do this there is no point in them investing.
For the business that is being acquired, this is obviously crucially important. It means that they are going to benefit instantaneously in ways that they probably wouldn’t have been able to take advantage of in the past.
For example, in the case of Sun Capital, this is an investment company that knows the restaurant trade inside-out. They own countless chains and immediately, this means that any business of this ilk that they take over is going to benefit from their expertise. This might be in the form of knowledge, in relation to what has worked for other restaurants. Or, it might be financial savings, due to the fact that they can have cost efficiencies through the sheer amount of equipment or ingredients they purchase.
They don’t tend to interfere profusely
There are some forms of investment that results in the investor interfering profusely. They will micromanage the existing management team, and this can be a nightmare.
When it comes to private equity, this is rarely the case. They are keen to leave existing management teams in place, and this means that wholesale changes don’t really occur.
Of course, as we have already alluded to, they do try and pass on some operational expertise. However, this relates more to strategy – meaning that you don’t have to have any concerns about meddling in day-to-day practices.
There is a vested interest in you succeeding
Sure, in every investment type the person or company pledging the money is going to want a healthy return. When it comes to private equity, they tend to arrive with a clear exit strategy though. Ultimately, they want your business to succeed, and they want this to occur in record speeds.
The upshot of this is that you will always have commitment; whether this is of the financial variety or related to their knowledge. You don’t have to worry about them slipping off and taking a backseat; it’s simply not sustainable for them to do this and they’ll want to help you every step of the way.