By Ben Botes, Joint CEO Caban Capital PLC - www.cabancapital.co.uk

While most business owners know about venture capital funds for funding startups or early-stage companies, the option of private equity as an option for growing small to midsize companies tends to be less known.

Private equity – or “PE” – is the umbrella term for a broad range of funds that pool investors’ money together to increase their buying power. However, while most mutual funds fund shares trade on active public securities exchange, private equity funds attract investors who are willing to hold shares.

It is this idea of selling a significant stake and/or giving up control of the business that has owners shying away from considering private equity opportunities for growing their businesses. However, private equity can be a great option for pushing the company forward and ultimately helping the business grow.

Private equity funds are constantly looking for new investment opportunities – and that can mean your business. And the great thing about private equity funds is that they have hard cash on hand to buy companies, thereby creating less uncertainty for business owners.

Here’s a rundown of what private equity can do for your business:

Recapitalize A Struggling Business

Private equity funds are not scared of investing in companies with “hair on them”, so to speak. As long as the company is a good candidate for a near-term turnaround, equity funds will be happy to invest in struggling businesses. In private equity lingo, “recap” funds seek to recapitalize or restructure a company for the future.

Invest In Expansion Capital

Owners of prosperous businesses can often become tapped out. Every business and personal asset can become pledged as collateral on bank loans, ultimately jeopardizing the company’s growth prospects and competitive standing. In comes private equity funding – helping prosperous business owners continue their winning way by providing funding for things such as acquisitions, new product line development and/or geographic expansion.

Buy Out Existing Investors

Sometimes, in order to grow a business further, new blood is needed. Old investors can become “tired” investors, especially if they’ve had their money tired up for five or more years in a privately held business. While the terms of this private equity transaction can be tricky, it is doable, especially if the underlying company still has considerable financial upside ahead.

Cash Out The Founder

Sometimes, the actual owner of the business could be looking to exit. Things such as illness, divorce settlements, retirement, boredom, or just unsolvable squabbles with investors could be reasons a founder needs to sell their share. Private equity gives you the opportunity to buy out owner, while keeping existing investors in place. These buyouts are also possible when employees partner with a private equity fund to finance a “management buyout”, however, typically private equity funds are more attracted to cashing out a founder if a controlling stake is available.

Buy Out The Company

And lastly, private equity funds can buy 100 percent of the outstanding shares of the business, cashing out founding shareholders and previous investors. The founder may be retained to continue to manage the business, or the buyout fund can install a whole new senior management team and board of directors.

A new type of private equity model

In recent years a new type of private equity has started to emerge focusing less on the investment of capital into businesses and more in the provision of high quality business support services. Simply investing money into a business certainly will not automatically lead to growth and success for such business. Firms such as Caban Capital focuses initially on the provision of services to the entrepreneur or business they are engaging with. Services will include financial, marketing, sales and IT services, ensuring that the business benefits from high impact, proven services through which the business can then be taken forward. This new model is both effective and efficient as a private equity model, dramatically increasing the target companies chances of success.

Overall, it’s important to remember that private equity investors are just that – an investor. They’re attracted to companies that they understand, where they can add value, and with a management team they can connect with. While it may be intimidating thinking about relinquishing your business to these private equity funds, the upside of these deals, when chosen carefully, can certainly help bring your business in the right direction.

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