SMEs drive private equity investment

Private Equity

A recent analysis of private equity transactions in the £10m – £100m bracket, produced by Cass Business School and Lyceum Capital, showed that the third quarter of 2015 was a resurgent period for the smaller buy-out.

It doesn’t surprise me. Confidence is returning among owner-managers – at long last. After fighting to survive during the downturn, followed by a welcome recovery, many of them waited to see the outcome of the May general election, and any changes in the economic and transaction landscape.

Now the window for exits, which has been closed for many, has been opened, we expect to see deal volumes across the market increasing throughout the rest of 2015. There hasn’t been a better window for talking to private equity for many years, given the amount of capital and liquidity available.

It helps if you are in sectors such as Business Support Services, Retail and Consumer, and Healthcare. The Lyceum/Cass research notes that since July 2008, 36 per cent of companies attracting investment operated in the field of Business Support Services, followed by Retail and Consumer (18 per cent) and Healthcare (14 per cent). “Markets such as energy and environment remain largely untapped by lower mid-market private equity funds, accounting for only one deal over the same 27-month period.”

But. (There’s always a but.), a word of caution …

For owner-managers who want to exit, the private equity route is only truly open if you have a genuine management solution. If you don’t want to continue running the business post deal, you need a credible successor in your management team.

There is a better awareness of private equity than a decade ago – but many owner-managers still don’t fully understand the planning that they need to do in order to be a realistic transaction prospect for a private equity house. Get an adviser on board early. Have a management solution and business plan that are credible and attractive for an investor. You won’t be able to sell your company to private equity without these, even if they are currently funding more deals.

If you are considering private equity as an exit route, call us first.


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