To most of the world, the private equity industry is a bit of an enigma. Seen through a fisheye lens from afar, the view of private equity tends to be broad but distorted.Popular culture oversimplifies or caricatures the industry via films like Wall Street or Pretty Woman while news media focus on excesses or unsuccessful deals. The realities are much more nuanced, and owners and executives of smaller businesses would do well to learn more about this alternative asset class. That’s because private equity can be an ideal way for smaller enterprises to access capital and accelerate growth. Few people fully understand our industry. Today’s private equity industry has undergone considerable changes in recent years due to new regulations and lending restrictions. The best private equity firms – and actually the only firms that will survive long term – are experts at creating value. This ideally benefits everyone involved. Helping businesses grow delivers results for investors, but it also creates jobs and even enhances the broader economy.
More than moneyThe “equity” in private equity means a lot more than money. It means operating and management talent that truly delivers better results by uncovering opportunities and meeting needs. This intellectual capital is critical for successful deals, and can often drive transformative growth that takes a little company to new heights. Obviously, money is still very important, especially in a sluggish economy. Finding the resources to drive growth can be difficult for smaller enterprises, which is why many turn to private equity firms when they want to supercharge their expansion. New financing from private equity may not be available from any other channel, and it can help companies survive or even expand during a downturn, add staff or manufacturing capacity, and pay down loans.
A unique offeringPrivate equity firms are able to add value to smaller businesses because they combine the nimbleness of an entrepreneur with deep resources normally only available to Fortune 500 companies. This is one of the key reasons that private-equity backed companies have been shown to grow faster. Here are some specific tools that strong private equity firms provide:
Operating expertiseTalented operating resources can deliver value in countless ways, including implementing lean manufacturing, improving sales and marketing efforts, optimizing pricing, building new facilities, implementing financial controls, and integrating add-ons. A deep bench of operating experts with decades of experience in companies and industries much like those they support can be a boon for smaller companies.
Training opportunitiesPrivate equity firms can often provide learning opportunities that allow company managers to share best practices and to access cutting-edge techniques for growth and management. Riverside runs a series of in-person and virtual training events that teach leaders how to improve sales, lower costs, and increase efficiency.
International expansionMultinational locations and local talent all around the world allow private equity firms to deliver direct contacts to help companies buy and sell products from and to markets all around the world.
Access to the best resourcesPrivate equity firms give smaller companies access to dozens of trusted and vetted consultants and senior advisors who help drive growth. Portfolio companies can hire trusted firms to help with sales & marketing, IT, management, HR, and other vital areas.
Purchasing PowerHarnessing the purchasing power of a large portfolio allows small companies to get favourable pricing on services and commodities like shipping, office supplies, and other services. Private equity and the companies in which we invest thrive by applying all kinds of equity – intellectual and otherwise. For businesses seeking to supercharge growth, a private equity partner could be the perfect fit.
Trey Vincent is a partner at the Riverside Company.
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