Funding Matters; Expert View: Private Equity

By Paul Spencer, director, Haworths

Article sponsored by Haworths Chartered Accountants.Haworths logo

Often as a firm has grown, become profitable and created a professional dynamic management team, it develops opportunities to drive forward by way of acquisition, or creating circumstances that can drive incremental growth.

We often introduce clients to private equity (PE) organisations to fuel this growth. PE is a confusion of terms. Put very simply it is the investment in unquoted (private) companies. In the UK the term is generally used to cover the PE industry as a whole including investment to fund buyouts and venture capital.

Venture Capital, meanwhile, is a sector of private equity covering investment in early stage and expansion of businesses. PE often hits the headlines for huge deals but it is also appropriate as an investment route for companies that have achieved a degree of profitability (often around £500,000 of net profit), and have a professional and commercially aware management team.

Often, the investment is used to buy out the existing owners and then allow the management team to own a portion of the business and steer it using the PE funder’s equity investment.

Alternatively it may be used to make strategic acquisitions to add to the critical mass and profitability of the business. PE is increasingly an option in the medium sized SME sector.

Often, PE organisations have sector specialisms and can add huge value to existing management teams.

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