Private equity (PE) investment is a funding option for established companies seeking medium- to long-term investment (typically four to seven years) to drive growth and expansion. Unlike other forms of finance, PE firms take a significant stake in the business, often a controlling stake, which is a significant commitment.
PE investors typically aim to improve the business’s profitability through operational improvements or to grow revenue through investment in product lines, new services, or expansion into new territories. They may also introduce corporate disciplines and a management structure to the business, providing a platform for further growth.
The PE governance model consists of a combination of strategic, financial, and operational expertise. Non-financial support may include strategic advice and facilitating access to established marketing or distribution channels. PE investors actively manage their investments for a fixed period, after which they typically exit their investment by selling their shares, having seen the value of the invested company grow.
PE can be a complex, costly, and time-consuming process to secure. Companies interested in PE investment should seek professional advice and can learn more on the British Venture Capital Private Equity Association (BVCA) website.
Although the PE model is not a permanent funding source like listing on the stock exchange, it can be an attractive alternative to companies planning to make significant changes to scale the business, particularly as part of an exit strategy. In addition, unlike a public listing, the PE model allows operations to remain private and not subject to the same level of scrutiny.
PE firms may exit the relationship in several ways, including a trade sale of their stake in the business, a sale to another investor, a stock market listing, or employee ownership (sale to company employees).
In conclusion, PE investment is a viable option for established companies seeking medium- to long-term investment to drive growth and expansion. It is a complex, costly, and time-consuming process to secure, but it can be an attractive alternative to listing on the stock exchange. However, companies interested in PE investment should seek professional advice to ensure their readiness and suitability for this form of funding.