Inside the private equity boom
Private equity investment has been a significant force in the financial world for some time.
However, the nature of private equity has changed considerably in the last few years and it’s worth knowing how this may affect your business.
Background
Traditionally, private equity involved investment firms raising funds from investors to acquire stakes in companies.
These firms work to improve the value of these companies before eventually selling them for a profit.
Historically, large institutional investors and wealthy individuals dominated this sector but that’s no longer entirely the case.
Advancements in technology and regulatory changes have made private equity more accessible.
Crowdfunding platforms and secondary markets now allow smaller investors to participate in private equity deals.
Private equity firms are also no longer limited to buyouts and are exploring a range of strategies, including growth capital, venture capital, and distressed asset investment.
What you need to know
Given these changes, it is essential to keep several key points in mind as you think about private equity investments.
Firstly, be aware of the due diligence process, as private equity firms will thoroughly research your company before acquiring a stake.
Understand their investment strategy, the types of companies they target, and how they add value.
This knowledge will help you assess whether partnering with a particular firm aligns with your goals.
It’s also important to understand the implications of private equity involvement because, while private equity can provide significant capital and expertise, it also comes with expectations.
Investments are often illiquid, meaning changes in ownership structure could tie up resources for several years.
Additionally, the success of these partnerships often hinges on the firm’s ability to improve the value of your company, which is not guaranteed.
You’ll also want to consider whether private equity fits into your long-term business strategy.
Be prepared to commit to a relationship that could last five to 10 years.
Seek professional advice
Your accountant is there to help you make sense of private equity and guide you through the intricacies of acquisitions.
