Six benefits of private equity investment

By Scott Bushkie / Guest Column

Private equity gets a bad rap. There’s this view of PE firms as takeover groups who will buy your business, break it into pieces and sell off the parts.

That may have been the dominant play at one point in time, when there were only a handful of firms. But the number of PE firms has exploded, and their growth strategies have evolved considerably.

Today, PE investors making acquisitions in the lower middle market are looking to add value. Typically, they won’t buy a business unless they can contribute to and accelerate, the company’s growth potential.

What’s more, PE firms are holding onto their investments longer, often seven years or more. For sellers, this longer turn time pro- vides assurances that their employees will have a role in the new business and growth opportunities of their own for many more years.

Here are six ways private equity adds value to your business:

Cash infusion. PE groups have deep pockets and can provide the financial resources to fuel growth. These firms may provide the capital needed to renovate a facility, buy new equipment or launch a marketing effort.

Expertise. Private equity can supply the talent your business is lacking. These are typically hands-on groups who will help you meet new business goals and maximize company value.

They provide experts who will roll up their sleeves and work alongside you, whether that means launching online distribution, securing a government contract or filling some other essential need in your business.

Connections. Some PE groups host annual mastermind events. Designed for CEOs and company leaders, these sessions are an opportunity to share best practices and hear emerging trends. The right PE firm is your path to a new community of peers and valuable business connections.

Management incentives. If you’re looking to reward your management team, private equity is one way to do that. PE investors want to ensure your management team, with all their experience, will stick around. They of- ten provide equity and worthwhile incentive programs to make that happen.

Proven returns. Private equity firms are experts at creating value. One study from Boston Consulting Group showed that two-thirds of private equity deals resulted in at least 20 percent annual growth for the purchased company, with nearly half realizing 50 percent annual profits or better. For investors, private equity outperformed stocks by 4 percent in the U.S. over the last 20 years.

Commitment to success. PE firms have their own vested interests in making sure your business does well. If a PE firm acquires or in- vests in your company, you can rely on their commitment to ensure its future is successful.

Like any industry, there are still “bad eggs,” but an M&A advisor can help screen PE firms to make sure you’re working with a good group.

Scott Bushkie is principal of CornerstoneBusiness Services, an M&A advisory firm with offices in Wisconsin and Iowa. He can be reached at (920) 436-9890 or sbushkie@cornerstone-business.com.