I hear private companies talk about PE investment a lot, and the EY Global Capital Confidence Barometer bears this out: when asked “What will be the primary source of finance you will be leveraging to fund your growth strategies in the next 12 months?,” 20% of private company owners named private equity financing, making it the second most popular choice behind private debt financing.
PE has the potential to help a company regardless of what stage it has reached in its development. If you have had experience with PE firms in the past, then you may already have your own opinion about the pros and cons that PE can bring for a company. The most important thing to keep in mind is that every PE firm is different, so in-depth discussions are essential before agreeing to a funding strategy.
When working with private companies, I often come across misconceptions about PE firms. Here are five of the most common:
1. PE firms always put their own interests before the company’s
PE firms are businesses, so they have a commitment to their stakeholders and owners to make money; but to do that, it’s in their best interests to help their investment succeed. They are experienced at creating “market-approved” value, which can be good for any stakeholders of the company they have invested in.
Indeed, an EY article published in 2018 makes the point that PE firms face increased competition for good investments in what is currently a seller’s market. It says: “PE executives increasingly must bring deep strategic expertise to assets in their portfolio, to transform those assets’ business strategies, processes or business models in ways that drive top-line growth.
By doing so, private equity firms will be in a position to build sustainable businesses that can thrive long after they have exited the investment.”