WHAT IS PRIVATE EQUITY?
What is Private Equity? Michael Tait explains:
Private equity (PE) firms invest in growth opportunity private companies. In return they acquire substantial ownership stakes in the company. within 3 to 5 years they seek to exit thier investment for a profit.
Throughout this duration, PE investors play an active role in influencing the companies they invest in, encouraging changes to improve operational efficiency, strategic direction, or financial performance.
Returns for PE investors primarily derive from capital appreciation, signifying the increase in the value of the invested capital. Additionally, they anticipate receiving management fees from the investee company.
When seeking investment from a private equity (PE) company, it is crucial to adopt a strategic and well-prepared approach.
Michael Tait advises the following approach:
- Appoint a Corporate Finance Adviser:
- The importance of appointing an advisor cannot be stressed enough. It is unlikely you will get investment without the help they provide.
- Your advisor will actively guide you throughout the process. Your adviser will be responsible for drafting your business prospectus and investment proposal. They will introduce you to the PE investors they believe are a good fit for you.
- Additionally, your adviser will accompany you during crucial investment presentations.
- Prepare Your Business:
- Ensure that your business is thoroughly prepared for investment. This involves crafting a clear and comprehensive business plan, compiling detailed financial statements, and presenting a compelling value proposition.
- Work out and present the specific reasons why your business is an attractive investment.
- Create a Comprehensive Ptresentation:
- Develop a compelling and concise pitch that effectively highlights your business’s strengths, growth potential, and the specific investment opportunity at hand.
- Clearly articulate how the private equity investment will be utilised to achieve mutually beneficial goals.
- Prepare Due Diligence Materials:
- Anticipate the due diligence process by meticulously preparing detailed information about your business. This includes financial statements, market analysis, and essential legal documentation.
- Meetings and Presentations:
- Proactively schedule meetings to present your business and investment opportunity. Showcase your team, elucidate your growth plans, and anticipate and address any questions the PE firm may have.
- Be well-prepared to discuss financial projections, market positioning, and potential risks.
- Negotiation and Term Sheet:
- In the event of the private equity firm expressing interest, actively engage in negotiations. Discuss valuation, ownership terms, governance, and other key terms.
- Once both parties reach an agreement, initiate the drafting of a term sheet that outlines the fundamental terms of the investment.
- Due Diligence and Closing:
- Collaborate closely with the private equity firm to facilitate the due diligence process, ensuring a thorough examination of your business.
- Upon the completion of due diligence and satisfaction on both sides, proceed to draft final legal documents. Once these are agreed upon, the investment can be successfully completed.
What is Private Equity – Conclusion,
it’s essential to bear in mind that this process can be time-consuming and may necessitate persistence. The emphasis should be on building robust relationships and maintaining a high level of preparedness at each stage, not only to enhance the likelihood of securing private equity investment but also to foster camaraderie.