What are some of the most common misconceptions around private equity?
For any entrepreneur, understanding the various investment opportunities available can seem overwhelming.
At Clearwater Growth, we specialise in working with owner-managers of high-growth businesses on their strategic options, with a focus on finding the right investment partner to support growth and maximise value.
One such option is minority private equity (PE) investment, which enables entrepreneurs to realise some of the value held within the business, whilst providing the required funds to support their short and longer-term growth plans through various means including international expansion, recruitment, acquisitions, or the development of a sales and/or marketing team.
With so many misconceptions associated with PE it’s understandable why some business owners initially disregard minority investment when considering their options, however it is important for our team to address these with entrepreneurs:
- Will a PE investor tell me how to run my business?
Entrepreneurs will sell less than a 50% stake of their business to a PE firm in a minority deal. Whilst the firm will take a seat on the board, this is mainly to offer guidance and support, with the shared aim of growing the business. A minority investment enables entrepreneurs to extract capital, whilst retaining control of both the day-to-day running of the business and key strategic decisions.
- Is a PE investor going to change the culture of the business?
PE support management teams to deliver a growth plan, so it’s in their best interest to maintain a positive company culture. Given their previous experience of working with management teams of successful businesses across a variety of sectors, they can share best practice to help streamline processes and optimise workflows, which positively impacts employees and overall interaction.
- Will the PE firm be in control of the eventual exit?
The motivation of all shareholders will be aligned – to supercharge growth ahead of an eventual sale of the business when the time is right. Of course, PE firms will have their exit strategy in mind, but will support business owners over a number of years (typically three to five), with a mutually beneficial aim of maximising shareholder value. Exit timescales and objectives should be discussed at the outset when selecting a PE partner. Some minority PE investors have a patient, flexible approach to exit timeframes, and some don’t have ‘drag-along rights’, meaning they can’t force an exit. In this way, the entrepreneur can remain in control of both the exit route and timeline.
An important aspect of our role as an adviser is having a deep understanding of the range of PE investors operating in this market. This includes what they want to invest in, their culture, relevant credentials, experience in implementing similar growth strategies, and how they can add value.
The Clearwater Growth team understand the challenges entrepreneurs face and are well-positioned to give the best possible advice to identify the right partner. Our team is also unique in that it can leverage Clearwater International’s sector expertise, global footprint and additional capabilities across financial modelling, debt advisory, and ESG advisory.
Clearwater Growth recently advised Triangle Fire on securing investment from the Business Growth Fund, to support expansion of its team of 100, establish new service lines, and provide funding for acquisitions.
In addition, Clearwater International previously advised BCN Group, a leading digital transformation and technology solutions provider, on its minority investment from Beech Tree Private Equity. Whilst partnering with Beech Tree, BCN accelerated its turnover from £10m to £40m, through strong organic growth and a strategic acquisition strategy. Our team continued to work with BCN over the course of Beech Tree’s investment and advised on its secondary investment from ECI Partners, which provided capital to continue their buy-and-build strategy going forward.
Whether your aims are to raise growth capital, undertake shareholder restructuring, facilitate an MBO, or de-risk by selling part of the business, minority PE investment could be the ideal solution. Engaging in conversation with Clearwater Growth will ensure any popular misconceptions are addressed, with the focus on enhancing the value that can be achieved for shareholders, the management team, and the PE firm.