Inform Magazine

EXPLORING THE BENEFITS OF PRIVATE EQUITY

W

ho stands to gain from private equity? The simple answer is ‘everyone directly involved with the business’.

A private equity firm will take into consideration future growth prospects, which will often result in higher multiples being paid. Bringing a private equity firm on board can allow the owner to adjust their own level of involvement by promoting existing staff or hiring experienced management to help reduce the workload.

Private equity is one of the options available to business owners who are looking to protect the future of their company, including those not seeking a complete exit. Rather than saying a sudden goodbye to a business they may have started from scratch, the owner can join forces with an investment management firm that injects funds into a business with growth potential that is not, or will no longer be, publicly listed, in return for an equity stake. The capital raised can be used to drive growth with the ultimate aim of a positive return on the investment for shareholders over a medium-term period, perhaps five years or so. Whatever the reason for the sale, it is vital to work with an experienced adviser to achieve the highest value possible. KBS Corporate has more than two decades of experience in advising our clients on all manner of exits, so we understand each business owners’ objectives, as well as how to source the most appropriate acquirers to meet them. So what are the advantages of private equity, and for whom? Here are the ways in which those with a vested interest in the company’s performance can benefit. If there are multiple shareholders in a company, they may have differing views on how long they envisage remaining invested. Private equity can enable shareholders to de-risk a portion of their stake by selling a percentage of their shares and keeping the remainder, potentially realising greater value in the future when the anticipated growth has occurred. THE SHAREHOLDERS

THE EMPLOYEES

Besides the potential for promotion opportunities mentioned above, there are other ways in which staff can benefit from private equity investment in the company for which they work. Greater engagement and motivation can be generated by private equity firms facilitating a Management Buy Out to enable a change of ownership. The employees’ shareholding would incentivise them to drive future growth. A sense of ownership for the workforce would mean they were aligned with the private equity firm in the quest to fulfil the mutual objective.

THE PRIVATE EQUITY FIRM

Obviously, the aim for the PE firm is to realise significant returns by driving rapid growth in their acquisition within a relatively short timescale.

A typical target amount would be more than double the original investment.

Private equity firms may hold several investments within a given sector in order to increase their knowledge and experience of that industry, thereby creating synergies which benefit their portfolio.

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