Shattering investment myths

The myths surrounding private equity were laid to rest by funding experts and business leaders at a conference designed to show how it really works.

The online conference was designed to remove the mystery around PE and offer solid advice from professionals and those who have gone down this particular investment path.

Private Equity: How it really works! was organised by Lancashire Business View in association with Baines Wilson, EY and LDC.

Delegates from across the county and wider region heard from a range of guests who examined what businesses can gain from PE investment and the pitfalls to avoid.

John Clarke, investment director at LDC, told the conference: Probably the biggest myth, and most common, is that PE dictates to management teams and business owners how to operate and run their business successfully. That is so far from the truth as could be.

He said that PE investment firms like LDC provided expertise to support management teams on their growth journey but were not experts in operating the business and recognised that fact.

And he added: “The last thing we would want to do is impose a strategy on business owners that is not completely bought into by the owners and the management team.

Private equity can really add value and support the growth journey

Private equity can really add value and support the growth journey. The biggest point about PE is that we are shoulder-to-shoulder with the owner and the shareholder group.

Mark Clephan, head of corporate finance in the North at EY, said: The fear is that there is not going to be any autonomy after private equity becomes involved.

That just can’t be the case. The private equity house is backing the management team and the plan that management team has created. The worry that they are gointo come in and take over and run it in a different way is unfounded.

It is not just about money. It is about working out how the culture works; that you trust the private equity house and you see them as individuals and there is a match of experiences.

He added: Another big myth I hear all the time is that private equity is not interested in growth. The fact is private equity only makes money through business growth.

You go for private equity if you value the experience they have. If you just want money, I can you find alternative ways.

He added: If you are thinking about private equity speak to everyone involved in the process. Speak to people who have been through it and get a feel about what it is like. See the whole picture.

Jennifer Bell, partner at law firm Baines Wilson, said there was a fear among business owners that going down the PE path meant they were giving away their shareholding.

She said: Their concerns are about giving away a large chunk and reducing the amount they get at the end.

It is about explaining and reassuring them that the whole point is to grow that business, which ultimately grows their return.

They may also have concerns they are going to be pushed into an exit when they are not ready for it.

Again, it is about explaining that, if they have got the right partner, when the exit is right for the private equity house it is usually right for the existing shareholder as well.

The conference speakers also stressed the need for businesses to carry out research and to engage with different private equity houses to find the right fit for them.

Jennifer added: Provided you have got the right fit of people and you are all aligned, a lot of the myths will be dispelled going forward because you will be working with people you know.

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