Why You Need To Partner With The Right Private Equity Group
Partnering with a private equity group can drive tremendous growth for manufacturing and automation businesses thanks to the virtually immediate injection of funding and expertise that comes with these partnerships. It’s a major opportunity that many business decision-makers have leveraged to drive growth, but still remains underutilized by some. If you’re on the fence about partnering with a private equity group or just now starting to consider this option, take a look at these reasons why you need to partner with the right private equity group.
Private equity (PE) groups allow for rapid scale
Organic growth is excellent but scaling up a business quickly often requires funding and significant overhead, especially in manufacturing and automation. Partnering with a private equity group allows growth-primed companies to lean on their private equity partners for the capital required to invest in themselves. Whether that funding is needed for equipment, hiring, real estate, or any of the other expansive needs that can become a factor when scaling up a business.
PE groups provide leadership and experience
Private equity firms exist to boost efficiency and profitability. In working with other businesses, they can provide leadership and strategic experience and expertise. Many of these groups are very hands-on and provide valuable support and leadership to their growing partners with a focus on improving both their top and bottom lines.
John Garner, Head of New Business LDC, weighed in on this point in an article written for LDC.co.uk.
“While partnering with a private equity investor can enhance organic growth strategies,” Garner said, “It can also give management the confidence to try new strategies that may not have previously been considered, such as expanding internationally or buying complementary businesses to diversify services or increase market share.”
PE firms will help you complete your management team… and overstepping is very rare
According to co-founder and CEO of Gulf Capital, Dr. Karim El Solh in an interview with entrepreneur.com, “PE firms back management teams before they back companies. It is very important that the right management team is in place to execute on the ambitious growth plans. If a management team has a gap or uneven capabilities, the PE firms can step in and help strengthen the management team by sourcing experienced professionals from their wide network of contacts.”
He also added that, “In addition to the management team, PE firms will focus closely on the composition of the board and strive to attract the right mix of industry, strategy and finance experts at the board to help guide management on both strategy and execution. PE firms prefer to operate at the board level and empower the management team to execute their business plan. While they can help from time to time on a micro level or on a specific task, such as securing adequate bank financing, they prefer to remain involved at the board level and give the CEO and the team the free reigns and accountability to operate and achieve the business plan. However, they will step in and intervene if management is facing difficulties or not executing according to plans.”
If your goals are aligned with your PE group, growth will often follow
Another excellent point Dr. Karim El Solh brought up during his interview with entrepreneur.com is the importance of aligning goals with your PE firm. He explains that the PE group will spend considerable time drafting a proper business plan that all parties are aligned with upfront for good reason, “To ensure that management have clear goals to strive for and if they achieve them, the long-term incentive plan will ensure that they are properly rewarded accordingly.”
As Dr. Karim El Solh explains it: “By clarifying the long-term goals and linking financial rewards to them, PE firms ensure that the management team is properly aligned and everyone is working towards the same goals. Most long-term incentive plans include a cash (bonus) component and a stock component, which vests over time. Naturally, management is not allowed to sell its shares in the company until a proper exit is secured and both the PE firm and management are able to sell to the next buyer at the same time. By focusing together on the end financial result, the PE firm and management are completely aligned and share the same financial interests.”
When both PE firms and the management teams within businesses are pushing in the same direction, it is much easier for companies to scale quickly and efficiently – setting themselves up for long-term success.