Global and domestic private equity funds have been increasingly active across Ireland in recent years, a trend that is expected to continue. In Northern Ireland, recent reports suggest the number of early-stage private equity investments and buyouts is up in the first half of 2019 even as overall M&A deal value has reduced.
In this insight we look at some of the key considerations for companies thinking about whether private equity is the right investment choice.
Private equity investment can take many forms. Whilst venture capital investment is available for early stage start-ups with little track record, a private equity fund tends to take a majority stake (alongside a management team) in a more established business, often with debt funding in a leveraged buyout. A mature business with a proven business model can also benefit from growth or development capital to help scale and take their business to the next level.
A major benefit of private equity investment can be the network and connections it brings to your business. Having an expert investor on-board who may have experience in your industry and access to high quality expertise and advisors can bring you more than just financial support.
Also, rather than giving shares to a disparate base of shareholders or investors, working alongside a private equity backer means you are more likely to have everyone pulling in the same direction in pursuit of growth and receive practical support.
As a founder, you can stay involved but benefit from an outside capital injection to pursue growth or expansion.
As with any outside investment or change to your business structure it is important to carefully consider whether private equity investment is the right fit for your business.
Not all private equity firms will operate in the same way, or with the same investment aims, so considering how aligned your interests and ways of working are is key. Knowing where in the funding cycle a particular fund is can also give insight into how they may approach an investment decision and growth strategy. Younger businesses are more likely to receive investment early in a fund's cycle as it gives more time for growth and a return on investment. In particular, you need to be prepared for a loss of control and the fact private equity can be more hands-on in their approach. Although you will likely retain day-to-day operational control and direction, a private equity investor will be heavily involved in setting strategy and monitoring implementation.
While giving up some control and reducing your ownership stake may feel counter-intuitive, you may need to consider reducing your slice of the pie in order that it grows overall. The longer-term benefits of growth and partnering with the right expertise and connections, however, could be much greater than continuing to focus only on self-funded growth.
Our highly experienced Corporate team can help businesses at any stage evaluate the right corporate structure, investment options and growth funding.
We regularly look at the key issues arising on our private equity transactions to identify trends and themes developing. Our private equity market monitor report is due out later this year, please do feel free to get in touch if you would like a copy. If you would like to chat through any of the above, please do get in touch with Andrew Jennings on +44 (0)333 006 1217 or Grant Edwards on +44 (0)333 006 1503.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2019. Specific advice should be sought for specific cases. For more information see our terms and conditions.