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How Private Equity Investment Can Grow Your Business

Jul. 19, 2020 6:03 PM ET
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Value, Growth, Portfolio Strategy

Seeking Alpha Analyst Since 2018

ex-Wall Street trader & now writer with 15 years experience covering the stock market, consumer finance, insurance, retirement, careers, college, and financial planning.

Private equity investment is a great source of funding for any business that wants to grow from its breakeven phase at launch to viable profitability. Every business owner desires growth, but getting sufficient capital at times to achieve this goal can be challenging. At other times, linear growth may not be necessary, but diversification in product range or resource improvement could require additional cash.

Private equity investors are the people to explore for that added cash you need to inject in your business. They will bring on board technical support, fresh business ideas to spur growth and the cash.

Positive impact on value

Private equity investors are usually experts in their fields of investment and bring this vast business knowledge to your company. Their level of professionalism and reputation will have a positive impact on the profile of your business through association. This, in turn, generates greater trust and elevates the value of your company.

Unlike salaried managers, private equity investors have a stake in your company and insist on proper governance systems for improved performance. Your company stands to gain from their wealth of experience and expertise and you can move on to other ventures with better business understanding.

Minority stakeholder protection

When your business is a partnership with bigger shareholders, you could risk giving up some of your rights. The big shareholders may also force managers on you and increase costs when not necessary. You need someone with enough muscle to keep the big boys in check.

A reputable private equity investor can bring in “an honest broker between all interests” as Mr. Saint Jermaine Endeley of the Count Consulting Group puts it. Private equity investors always strive to protect their turf against hostile interference.

Expansion and recap

When you run out of funding options at the apex of your company’s growth, you may consider private equity investors. This option will put at your disposal funds for expansion, new product lines, and branch opening. The investor will also come with fresh business ideas to improve your operations as you grow.

If, on the other hand, your business is struggling, you could use some funds to recapitalize. As long as your business demonstrates potential, private equity investors will be happy to partner with you for a fresh start.

Reduction of agency costs

Employing agents to manage your business presents challenges that eventually increase operating costs. Besides high spending on internal audits and salaries, there is also the inconvenience of working out solutions for divergent interests that may not appeal to principals. The level of commitment to the success of the company may not be as high for a paid manager as it is for an investor with a stake in the business.

Private equity investors prefer a hands-on management model that not only serves the business well but also cuts salary costs. These investors will work with your interests at heart as they also share expertise with you.

Improve and sell

If you are a restless spirit in the business world, you will not be likely to stay long in one venture. You are always looking towards new frontiers and diversify the business opportunities as soon as you establish one. This means that you have an overflowing reservoir of business ideas and you can turn these into mega dollars.

A good idea would be to set up a viable business and invite private equity investors to improve and buy you out at a profit. This is a much simpler, faster, and more lucrative option than listings and IPOs.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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