Entrepreneurs love to create.
Over years, sometimes decades, they labour to build a business, often working from the ground up. They develop thriving companies with bright futures. But when it comes to seeking external partners, owners can be taken aback by the risk averse nature of investors.
Why? What causes this misalignment in perception? It can help to understand the different motivations of both parties.
Create a space where both sides can talk frankly about expectations.
How can we help?
We work to create transparency, boosting confidence on both sides of a transaction.
Business owners looking to make a sale are focused on painting a picture, looking at the positives over the coming year and showcasing growth initiatives. We can help sellers to make the best case.
In contrast, private equity investors are focused on protecting against the downside. They want to know ‘what is the worst that can happen’? How can we protect our investment? We can help them understand the risks. What is the regulatory landscape like for the business they are acquiring, who are its competitors, will this change? What are the challenges around sustainability and ESG? Is any technology future proofed?
We create a space where both sides can talk frankly about these expectations. Our depth of knowledge across the market allows us to match the right investor to the right seller, taking into consideration these risk profiles.
What does success look like?
When we successfully connect buyer and seller – the rewards flow to both parties.
With an international perspective, private equity investors can help companies go global, growing outside of a home market. They have merger and acquisition experience, so can help grow a business with further additions – either horizontally or vertically within the value chain, among customers and suppliers, or competitors. Private equity has strengths in building a company, instilling structure and assisting with senior levels of recruitment.
There is much to be gained from finding the right investor. But we must remember, that while private equity might seem focused on the negatives, avoiding loss is more important than securing quick returns.
Difference of opinion
Entrepreneurs are focused on sustainable, profitable growth. They work to develop the potential of a business, innovating to create value through new products and services, or expanding into new markets. They seek opportunities and look to understand market trends. They aim to develop a competitive advantage, enhance brand recognition and cultivate a loyal customer base.
They are focused on taking calculated risks to generate maximum reward.
Private equity investors take a different approach. A typical private equity investor will raise a fund, looking for sufficient returns to create a subsequent fund based on the success of the first. Contrary to popular belief, these firms are not looking for a ‘quick fix’ – they are long-term orientated organisations.
They want to work with successful businesses, to make them more successful. By their nature, they are risk adverse. A fund wants to maximize its return on each individual investment, within three-to-seven years. They can take a long-term approach to their own company (the PE-house), as any business owner would. This entails delivering high, and solid, returns over time.
There is also ‘information asymmetry’ between the buyer and seller of a business during a transaction. Owners know as much as it is possible to know about a business, while a buyer is on the outside looking in – they cannot have full visibility over potential downsides. This can create uncertainty which could be perceived as the investor focusing on risks.
Private equity investors may also be looking to spend somebody else’s money, completing a transaction using leverage. A bank will attach covenants to any funds lent, specifying expected performance metrics for a business being acquired. This further incentivises private equity to mitigate risks, so they remain within acceptable thresholds. A bank simply wants to be repaid – it is less concerned about significant upsides.
In general, PE funds want to maximise the return on investments, making each company they acquire more valuable in a relatively short period of time. However, as a fund they want to deliver solid returns over time and are keen to avoid poor investments.
Difference of opinion
Entrepreneurs are focused on sustainable, profitable growth. They work to develop the potential of a business, innovating to create value through new products and services, or expanding into new markets. They seek opportunities and look to understand market trends. They aim to develop a competitive advantage, enhance brand recognition and cultivate a loyal customer base.
They are focused on taking calculated risks to generate maximum reward.
Private equity investors take a different approach. A typical private equity investor will raise a fund, looking for sufficient returns to create a subsequent fund based on the success of the first. Contrary to popular belief, these firms are not looking for a ‘quick fix’ – they are long-term orientated organisations.
They want to work with successful businesses, to make them more successful. By their nature, they are risk adverse. A fund wants to maximize its return on each individual investment, within three-to-seven years. They can take a long-term approach to their own company (the PE-house), as any business owner would. This entails delivering high, and solid, returns over time.
There is also ‘information asymmetry’ between the buyer and seller of a business during a transaction. Owners know as much as it is possible to know about a business, while a buyer is on the outside looking in – they cannot have full visibility over potential downsides. This can create uncertainty which could be perceived as the investor focusing on risks.
Private equity investors may also be looking to spend somebody else’s money, completing a transaction using leverage. A bank will attach covenants to any funds lent, specifying expected performance metrics for a business being acquired. This further incentivises private equity to mitigate risks, so they remain within acceptable thresholds. A bank simply wants to be repaid – it is less concerned about significant upsides.
In general, PE funds want to maximise the return on investments, making each company they acquire more valuable in a relatively short period of time. However, as a fund they want to deliver solid returns over time and are keen to avoid poor investments.
How can we help?
We work to create transparency, boosting confidence on both sides of a transaction.
Business owners looking to make a sale are focused on painting a picture, looking at the positives over the coming year and showcasing growth initiatives. We can help sellers to make the best case.
In contrast, private equity investors are focused on protecting against the downside. They want to know ‘what is the worst that can happen’? How can we protect our investment? We can help them understand the risks. What is the regulatory landscape like for the business they are acquiring, who are its competitors, will this change? What are the challenges around sustainability and ESG? Is any technology future proofed?
We create a space where both sides can talk frankly about these expectations. Our depth of knowledge across the market allows us to match the right investor to the right seller, taking into consideration these risk profiles.
What does success look like?
When we successfully connect buyer and seller – the rewards flow to both parties.
With an international perspective, private equity investors can help companies go global, growing outside of a home market. They have merger and acquisition experience, so can help grow a business with further additions – either horizontally or vertically within the value chain, among customers and suppliers, or competitors. Private equity has strengths in building a company, instilling structure and assisting with senior levels of recruitment.
There is much to be gained from finding the right investor. But we must remember, that while private equity might seem focused on the negatives, avoiding loss is more important than securing quick returns.
Knowledge
We don't hide behind jargon and complexity. Instead, we aim to open up the black box of M&A, illuminating the path with clear insight, simplifying the process, and delivering valuable information.
