Business Owners
Targeted Industries |
Investment Criteria |
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Benefits of Private Equity |
Our Strategy |
Case Studies
Benefits of Private Equity
As an industry, private equity provides the following benefits to both its portfolio companies and the business owners who select to utilize private equity to grow their business:
Peace of Mind
Some business owners get to a stage in their lives where they no longer want to "bet the farm” on their business’ next growth phase. In these circumstances, private equity can provide business owners with peace of mind knowing that they have securitized a large part of their net worth and left the business in the hands of competent investors. In this way, business owners can continue to grow the business and continue to financially participate in that growth without the concern associated with re-investing more of their own net worth back in the business.
Succession Planning
Many entrepreneurs have not had the time or inclination to think about succession planning for their business. Sometimes, entrepreneurs believe that the next generation will automatically assume the business regardless of whether this is consistent with their children’s goals and desires. In other circumstances, business owners know that the longevity of family-owned businesses rarely extends past the second generation. Regardless of the situation, the goals of business owners and private equity are in perfect alignment on this topic. Private equity looks past the familial aspect of businesses and hires people that are the best fit for the long-term viability of the business, which is consistent with a good succession plan. Private equity can tap into its broad network of relationships to find the right individual or team to run the business where succession is an issue.
Growth Catalyst
Private equity acts as a catalytic investor for those companies and management teams who are being held back by a lack of investment capital. In these circumstances, private equity can bring the financial and human resources necessary to make transformative changes to its portfolio companies (see Stantec profile).
New Perspective: Value Creation
For many business owners, the introduction to private equity will be the first time their business has been exposed to the outside. Private equity will also hire specialists who understand best practices in specific industry sectors or functional areas and develop a plan to add value post-closing. It is the combination of the insights of specialists, the management teams, and the hand-selected industry-relevant Boards of Directors (see Governance: Public While Private) that will create value in portfolio companies, either through internal growth initiatives, internal cost initiatives or external acquisition opportunities (see Value Creation).
"Second Bite at the Apple"
The preferred route for many private equity firms is to acquire a majority of the equity of the businesses in which they invest, thereby leaving the vendors and management teams with a meaningful stake in the business. The reason is simple, we want to have the Business Owners and Management Teams have "skin in the game”. By having skin in the game, the private equity firm is aligning their interests with that of the management teams. We believe that, depending on the equity stake retained and the growth opportunities available in the marketplace, Business Owners can potentially make as much or more money from their minority equity stake as they made when they sold a majority position. We call this getting a "second bite at the apple”.
"Spread the Wealth"
Many Business Owners realize that the businesses they own would be a fraction of their size and profitability if it weren’t for the efforts of their highly qualified management teams. Partnering with private equity allows for management teams to earn equity or equity-like compensation through plans established to allocate a part of the increase in equity value to Management Teams. In this way, Business Owners can "spread the wealth” created through the subsequent increase in equity value under the ownership of the private equity firm.
