In today's volatile economic and political landscape, businesses face unprecedented challenges. Inflation, interest rates, supply chain disruptions, skills shortages, and wavering consumer confidence all strain profitability and hinder growth.
For family-owned businesses, there can also be the added complexity around the future leadership of the business when the current generation is looking to transition, step back or is considering retirement.
These challenges have meant that for many family-owned businesses, plans may have been put on hold since 2019 or even earlier. Owners are now left thinking “what next?”
This is especially true when succession may be unclear, either because the next generation are not yet ready for a leadership role or have chosen an alternative route to their career. This can lead to family owners looking to other succession options outside of the family such as through third party investment.
For families who are considering selling their business or management teams considering a buyout (or some blend of the two), partnering with a private equity investor to achieve that transition is becoming an increasingly popular alternative to a trade sale.
What is Private Equity?
Private equity firms raise funds from institutional investors such as pension funds, endowment funds and charitable trusts and use these funds to invest in privately held businesses to create value in a sustainable way. Private equity firms will often take a majority equity stake in a business and are ‘transitional owners’, typically holding their investments for around 5 years before looking for the next home for a business.
Businesses under private equity ownership can benefit in many ways, particularly in addressing some of the more nuanced challenges that family businesses can face such as succession plans and decisions on capital investment.
How Can Private Equity Investment Help Succession Challenges?
Private equity firms can bring a wealth of experience and expertise to the businesses alongside their capital. Key benefits for family businesses include:
A clear path for transition - Private equity can help to ensure a smooth transition of ownership and leadership which may be particularly valuable when a family member is looking to take a step back from day-to-day operations or achieve a full or partial realisation of their equity. Private equity firms can assist in developing the existing management team or use their network of c-suite individuals to help bolster the team as part of a transition.
Access to capital - Private equity firms can provide access to funding to support continued investment in the business towards the achievement of its strategic growth plan through capital expenditure or targeted acquisitions.
Knowledge and expertise - Partnering with a private equity firm can allow a business to access knowledge and skills to develop operations and support the strategic focus. Many private equity firms have considerable resources in-house and can help implement new processes and systems to improve operational efficiency.
About The Author: Jon Duffy is an Investment Director at Endless LLP, a private equity investor. At Endless, they like to take a hands-on approach, working with founders and Management teams to ensure the value they have created is protected and there is a smooth transition to new ownership. They offer a solution where the family's legacy remains intact, and the business's growth potential is maximised through access to capital, knowledge, skills and a broader network of business professionals. Endless’ impact is not just to provide capital and investment but also invaluable support and expertise.
They have been able to navigate complex due diligence sometimes with limited data and can help to see where the potential lies in creating additional growth and profitability. They can work quickly, with the process often completed in weeks rather than months so that owners and management teams have certainty. They also have the ability to fund deals themselves and are not reliant on external debt providers, another area that can cause delays in transaction processes.
Endless has two distinct teams to cater for businesses of varying sizes. Between Endless (investments of £10m - £100m+) and the SME-focussed team Enact (investments of £1m to £10m), they target UK businesses with revenues of £15m to £1bn+ across a variety of sectors.
The team at Endless are always happy to discuss how private equity could be part of your succession story. If you would like to talk confidentially to explore whether private equity could be the right home for your business, then please contact them via their website
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