7 PAUL MORRIS: DEMYSTIFYING PRIVATE EQUITY – AN INSIDER’SVIEW
PE INVESTMENT SEGMENTS
PE SPECIALISTS
PE; A COMPLEX LANDSCAPEWITH ENDLESS OPPORTUNITY
Owners and management teams might find it helpful to think of the investment market segments as falling into following broad categories: Start up – where venture
The investment landscape has further variability as even within each of the above broad categories investors have different approaches. Here are a few examples: X There are sector specialists who focus on areas such as technology or healthcare X Some investors insist on having
So as you can see the investor landscape is complex and varied. This may seem daunting if it is the first time you engage with PE. You should also recognise this as a positive. There will be an investor for virtually any type of situation; every size of company, in every sector and for any type of deal. My advice to any business owner looking for PE investment is to be clear what type of deal and investor you are looking for. Appointing the right advisor will be critical in helping you find the right investor and then negotiating the right deal.
funds look to back a concept or idea. Often businesses are pre profit and sometimes even pre revenue! Funds are typically used to develop a product and build business infrastructure such as opening an office and recruiting some staff. Scale up – where venture capital or smaller PE funds invest in smaller businesses who need capital and expertise to grow further. The funds are typically used to build more substantial business infrastructure such as grow the sales team and develop international markets. Buy out – where PE funds invest in larger more mature businesses. The investment will help facilitate a change of ownership such as a management buy out. This allows the existing management team, who perhaps have no or little equity ownership, to buy the business alongside a PE house.
majority control whereas others are prepared to take a minority stake
X A broad spectrum from those
who adopt a passive approach when managing the investment, to the extent of not even taking a board seat, to those who are interventionist, these investors often have operational rather than financial backgrounds.
X Some investors have exit
timeframes of typically 3-5 years whereas others are happy to have longer term holds.
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