News How to secure private equity investment

If you have read the business section of a quality newspaper in recent times it is likely that you will have picked up articles relating to private equity which contain phrases like ‘lots of dry powder’ and ‘capital looking for a home’ and it’s true, there is a lot of private capital in the market that is seeking to be deployed by the numerous private equity firms who are active in the UK market.

You may be thinking about taking advantage of this and accessing private equity financing for your business but maybe in the dark as to what exactly it means to be backed by private equity or what makes an attractive proposition from an equity investor’s point of view.

We’ve put together some essential areas you should be thinking about before you begin the process.

Are you clear on why you actually want to raise private equity finance?

This may sound like an obvious question, but if this isn’t concrete and your investment proposition isn’t absolutely clear then you’ll fall at the first hurdle. The objective behind raising private equity funding will define both the pools of investors you should speak to and the preparation that you will need to carry out.

What’s in it for them?
The adage about first impressions is very relevant here. Inevitably private equity investors are busy people who are shown a lot of exciting businesses. How you package and present the opportunity will be crucial to get their attention – but say you get that – then what?

The individual who is appraising the opportunity will be using a wide scorecard to make a judgement as to whether your business is a good opportunity for them. Ultimately, this appraisal will typically boil down to the essence of; “does this opportunity allow me to make the target return for my investors”.

Each fund will have different approaches, investment horizons and target returns, but immediately they will be thinking about what their end game is in relation to the potential investment.

Who are the investors backing?
Investors understand that it’s the people who’ll make or break the successful delivery of the business plan, and ultimately define the success of their investment.

As the founder, you may be leaving or you may be a big part of the future journey. In either case, having a clearly defined people plan, including identifying the senior team that is crucial to the future success of the business, and being able to demonstrate how they will be retained and incentivised will be important to the investor’s appraisal.

Often, the investment process also provides a great opportunity to put in place a structured equity incentivisation package for key people that may not already exist in your business. This will demonstrate that talent development and retention are core to your proposition and ultimately increase the attractiveness of your business to investors.

Are you ready to start the process?
Investors and their professional advisors will turn over every stone to forensically understand your business with multiple due diligence streams being carried out. This is conducted in several ways so that they can understand what is being acquired. This will help to inform their plans as to what should be addressed post-transaction.

Even with a well-defined business plan, you should expect investors to have their own views on how this can be supplemented with their ideas for improvement, which may lead to significant change post completion of the transaction.

Typically, in the SME part of the market, Private Equity investors will expect you to have a clearly defined commercial plan for how the business will scale and grow profitability. However, their immediate focus maybe elsewhere for example business practices, processes and controls, to ensure that the foundations for growth are stable and secure.

Expect to be challenged and held accountable for the delivery of the business plan – take the time to seriously consider whether you, your people and your business are ready for all this.

How do you know you’ve got the right investors?
There is a wide array of private equity investors in the market who bring different skills, experience and investment focus. Some may have first-hand experience of your industry sector, others may have more generic experience but a powerful network of contacts you can leverage, whilst others may be more hands-on.

It is equally important to find an investment partner whose funds are oriented toward the type of growth and exit profile you have in mind for your business.

You need to know exactly what you and your business are looking for in a partner before commencing the process. Whomever you choose will be working with your business closely for several years, so you need to be confident that the personalities and values match.

Have could the BHP Corporate Finance team support your business?
BHP will help you prepare your business for private equity investment advising you on areas that you might need to address ahead of the process commencing. We will advise on how to highlight the key attractions of your business to investors and present it to them on your behalf in a way that resonates with them. We aim to minimise the time taken for an initial appraisal and maximise the impact of your first impression.

You’ll be advised on the appropriate investment partners, and what to expect from each. BHP will guide you through the market norms and walk you through what to expect from investment terms in reference to your business and the type of funding you’re looking for. Several private equity firms will be invited to meet with you so you can make an informed decision on who the right partner is.

BHP will guide you through the investment process, negotiating on your behalf, helping you to focus on running the business and focus on the relationship with your preferred investment partner.

BHP Corporate Finance specialise in acting for ambitious private companies generating between £1m and £10m of EBITDA. For more information, get in touch.