What is private equity and what are the benefits?

Private equity is basically a form of finance that is available for companies.

However, unlike finance that is provided by the bank or other traditional debt providers, the private equity provider will take shares in the capital of the company.

Companies of all shapes and sizes and in all sectors need capital infusion at some point.  Private equity can be helpful for those companies that are looking to grow substantially, tap into entirely new markets, acquire a new entity or perhaps those whose business owners are looking to exit at some point in the future for a handsome sum.

We are seeing this form of finance becoming increasingly more popular, with many private wealthy individuals forming their own funds and investing in growing businesses, because they can, more often than not, achieve a better return on their investment than they could with the more traditional routes.

So, what benefits does private equity finance provide, over funding that can be obtained through the bank or other debt providers?

Private equity can provide much more flexibility than traditional debt and, in many cases, can provide ongoing access to future funds.  

Investors are looking for long-term gain and growth, their goals will be aligned with yours

However, one of the biggest benefits is the expertise that the investor can bring to the business with the appointment of experienced directors that can help with strategic decisions, provide introductions to key contacts and guide the business through significant growth and into new sectors.  

Many business owners shy away from private equity, due to a fear that they will lose control, however, this is certainly not the case.  

Whilst the investor will seek a number of controls and protections within the investment agreement, which will result in certain decisions requiring their consent, these will, more often than not, relate to high level strategic matters and key decisions, rather than the day-to-day management of the business.  

Ultimately, they are looking for long-term gain and growth, so their goals will be aligned with the business owner’s.

The benefits that private equity can bring to a business are significant, however in order to get the best from it, it is imperative that you choose the right investor for you.  

You need to spend the time early on, to carry out research, meet with them and find the investor whose views and values best suit you and your business. 

It is also important to get the right team of advisors in place to guide you through the process and be available when you need them.

If you need any advice or assistance in relation to private equity investment, then please contact Jennifer Bell, partner at Baines Wilson LLP on 01524 548494.

  • To read this feature in full and access further Lancashire business news, advice and analysis subscribe to Lancashire Business View magazine or join the LBV Hub from just £2.50 per month. Click here to subscribe now.