Private Equity Transactions

It is fair to say that many client’s instinctive reaction to private equity is cautious if not hostile. There is a general view that private equity investors are only interested in mega deals and that working alongside them will be difficult with a short-term focus on aggressive financial management. In fact, there is a vibrant private equity community focused on SME businesses with a range of investment philosophies. In our view most, if not all disposal processes should involve a conversation with private equity.

A buoyant PE market

The number of transactions involving private equity firms is increasing, and the pace does not seem to be slowing. There is plenty of cash to support buyouts and development capital deals for attractive businesses.

Why look at a PE transaction?

Investment from private equity can be a great way to enhance a business’s competitive edge and capabilities for innovation.

There are three principal reasons shareholders choose PE over other forms of transaction:

Private equity funds offer a distinctively different set of exit options for shareholders.
There are significant funds available to private equity investors meaning there is intense competition for good quality opportunities.
Private equity will often match or better a trade buyer’s pricing.

There is a vibrant private equity community focused on SME businesses with a range of investment philosophies. In our view most, if not all disposal processes should involve private equity.

What are PE houses looking for?

Your business needs to have some of the following characteristics to appeal to private equity.

A track record of growth
Strong growth potential
Have an established and repeatable formula for growth
A committed management team
Be operating in growth markets
Have good cash flow
Have secured revenues or strong levels of repeat business
A clear business plan
An ability to consolidate a market with acquisitions
Great systems
Good corporate governance
Have an obvious buyer or buyers at a future date

Few businesses have all these characteristics, but a private equity investor will need to build on some of these foundations. Private equity investors in the SME space must be able to add significant value beyond money. They are likely to have sector experience, access to talented non-executives together with experience of building businesses.

Ultimately all private equity investors are looking to generate a capital return from their investment. A typical investment period is 3 to 5 years although some investors will look at longer time frames. As a guide, a private equity investor will look to generate a total return of 2-3 times their investment.

Why choose HURST to advise you?

We have significant experience of concluding private equity transactions and we understand the requirements of many potential investors.

Having built strong relationships with private equity firms in the North West as well as on a national level, we can connect you with the firms that are best aligned to your business and objectives as a seller.

Our commitment to clients is to provide solutions. We will analyse your business to assess whether or not private equity investors would have an interest. If there is going to be interest, we can assist you to maximise the opportunity and find you the right partner.

Completing a private equity transaction is complex, the industry has a language and style of its own and preparation is key. Clients are at first surprised and then daunted by the level of due diligence undertaken by investors - we help reduce the task and make sure you will get through it.