Demystifying Private Equity

When determining the most suitable funding, it’s important to remember that there are numerous sources of financing available. This includes traditional bank lending, subordinated debt providers, vendor financing, as well as private equity (PE).

PE houses are forward looking, prioritising the business’ future prospects, in contrast with more traditional lenders who are primarily focused on security and historic trading. This enables businesses to capitalise on exciting expansion and growth opportunities, which would otherwise be impossible without a significant cash injection.

Maven, one of the UK's leading private equity managers, boasts significant experience in helping high-growth, entrepreneurial businesses in reaching their potential. We provide flexible financing solutions that can be utilised to meet a variety of corporate needs. Whether it's growth capital to propel businesses to the next level or support for an ambitious management team seeking a buyout of the company they have diligently built, Maven is committed to facilitating success. 

In addition to the cash injection, managers contribute insight and strategic guidance through board and operational engagement. It is this added value that distinguishes private equity finance from other forms of capital. Businesses backed by private equity have demonstrated faster growth compared to those utilising other forms of finance, attributable to the synergies achieved through capital investment and strategic input. Indeed, as part of their investment, a private equity investor will typically appoint an experienced executive to the board and may also introduce a Non-executive Director and/or Chair with knowledge in growing a similar business, most likely in the same sector. This combination of shareholder and lender results in a closer and more supportive role than other forms of financing.

The return on investment for PE investors is directly tied to the business' performance. The better the business performs, the greater the returns for all shareholders. Consequently, there is a mutual interest in the company's success, as PE investors are not just financiers but also business partners. They share both the risks and rewards of ownership. In the event of a dip in business performance, investors are incentivised to collaborate with you in efforts to enhance it and restore value to the business. 

There is often a misconception that owners are relinquishing control of their business to an equity investor. At Maven, while we do take a stake, we support management teams in running the business, and there is a mutual goal for all parties to increase shareholder value. Although management's equity share in the business may be diluted to some extent, the clear investment objective is to enhance the value of equity for all shareholders. Management can rest assured, knowing they have a supportive investor backing their development plans and providing strategic and commercial expertise when required.

When seeking equity investment, businesses should be mindful of the key aspects that a PE manager will consider in a potential investee.

• PE firms invest in people – the integrity and capability of the management team are critical when assessing future growth potential. Investors will closely examine the business owner and the members of the senior management team.
• Detailed financial projections – the business plan and forecasts will be scrutinised to assess the realistic return on investment, as well as the relationship between the growth strategy and the amount of capital required.
• Relevant market analysis – the analysis should demonstrate the potential opportunity for a business’ products or services and how management plans to develop and grow market share.
• Accessibility of information - if a business’s products or services are highly specialised and/or use bespoke technology, descriptions must be in a clear and logical format for those without an intricate background knowledge of that field.

PE investors won’t expect every company to be the finished article from the outset. After all, professionalising a business and equipping it for growth is where investors can create real value. Instead, they will look for a business with identifiable market potential and one that is led by an excellent management team. 

Maven is one of the UK’s most active private equity investors and is passionate about working with successful businesses to achieve their strategic goals and maximise growth potential. If your business, or the business you advise, is looking at private equity as a solution to fund future growth we would love to hear from you. Speak to one of our investment team by getting in touch at funding@mavencp.com