Considering Private Equity: What You Need to Know
Fundraising is often a difficult, yet necessary, task for business owners. Raising capital helps position your business to grow and expand, but choosing the right partner for growth can be a lengthy and arduous process.
A suitable financial partner can offer opportunities for success and longevity beyond capital. On the flipside, an ill-fitting partnership can pose inherent risks to your company.
Many businesses are afraid of financial titans in the private equity sector — and with good reason. The process is often transactional, number-oriented and offers limited value to the employees and company leaders who built these businesses from the ground up. It also fails to meet the needs of the customers who have invested in the business product or service.
However, if you find the right partner, private equity has the opportunity to lend both financial capital and operational expertise to propel your business to the next level. By looking for a partner who has experience in your industry and has demonstrated success, you can bring lasting value and sustainable growth to your business. Arming yourself with enough information to make a knowledgeable decision is the first step in choosing the right financial partner when you need one.
Private Equity Facts
$116BN
invested by private equity firms globally in Q1 2018
~8,000
U.S. companies backed by private equity at the close of 2018
$713BN
in U.S. private investment at the close of 2018
Benefits of Private Equity
- Strengthens organizations: 68% of private equity firms expect to drive company revenue growth by 10% or more during the first year after purchase.
- Job creation: As of 2018, over 20 million people in the world are employed by private equity-backed companies.
- Operational excellence: Nearly 60% of firms cite operational improvement as one of the main drivers of returns for companies, compared to ~30% of firms in the 2000s.
- Encourages digitalization: 57% of private equity firms agree that using technology and digital strategies helps to create value in a company.
- Enhances value: 59% of firms that have a methodology to create value for companies say they use it 75% of the time, a 25% increase from 2015.
"Private equity invests in businesses across the country, improving the lives of millions each day. If you just look at your own community, you’ll see private equity firms investing in companies and small businesses that need capital to keep their doors open, create new jobs and grow their footprint."
American Investment Council
Scenarios Where Private Equity Can Help
- Expansion into international markets
- New growth strategies
- Expand existing offerings
- Revive or improve existing operations/processes
- Hire and retain qualified talent
Sources
American Investment Council, 2019
EY, “Creating Value Throughout the Private Equity Investment Life Cycle in the Digital Era,” 2018
EY, “Understanding PE’s Impact on the Economy,” 2018
Financial News, “Mega-Deals Push Private Equity Investing to Record Highs,” April 5, 2018
La Fosse Associates, “Private Equity: Driving Value with Digital,” 2018
McKinsey & Company, “Private Equity Operating Groups and the Pursuit of ‘Portfolio Alpha,'” November 2018
Pitchbook, “PE-Backed Company Inventory Swells to New Heights in the U.S.,” November 9, 2018
Pitchbook, “U.S. PE Breakdown,” 2018