Why more firms are opting for private equity over public alternatives

Taking a business into the public domain may make it sound big, and it may give the owners something of an ego-boost. However, there are countless occasions where this isn’t necessarily the best course of action – and seeking private equity investment is going to be much more beneficial for the business.

To highlight just why more firms are going down the private equity route, let’s take a look at some of the advantages associated with this method of funding.

The involvement from a private equity firm can be priceless

We’ll start this one off with an example. Marc J Leder, the co-CEO of Sun Capital, has stated in the past that one of the prerequisites for an investment has to be that his team can offer operational expertise to the target company.

In other words, their experience and knowhow has to count somewhere.

This is where a lot of companies can benefit immensely. Staying on the topic of Leder and Sun Capital, this is a private equity group who have been responsible for investment in countless restaurants. It now means that when they show interest in another restaurant, the current owner knows that they can immediately make a difference as they can quickly implement proven changes.

When this is compared to public funding options, or even different types of private investment, the same benefits can’t necessarily be reached.

To put it simply, private equity investors are very hands-on and can make a difference quickly.

The returns from private equity are huge

This isn’t speculation; countless studies have proven that the returns from private equity deals are significant. One study found that around two thirds of all private equity deals saw the acquired company’s profits grow by at least 20%. On top of this, half of the deals that were analyzed had profit growth of over 50%.

Again, it all relates to the expertise. Being able to make such a difference in a short space of time can transform a balance sheet.

Private equity is open to a lot of businesses

In terms of the types of businesses that are suited to private equity, the list is endless.

We’re mainly linking this with the fact that private equity companies can generally invest huge amounts of money in their deals. It’s certainly not unheard of for these deals to eclipse hundreds of millions of dollars – meaning that plenty of businesses qualify.

Firms are committed to the cause

Following the above points, this final one shouldn’t come as a surprise. Having invested significant amounts of money into a business, it would be fair to say that private equity firms are there to stay for the long-term and are effectively committed until exit.

It means that a business won’t be left stranded under any circumstances; this would just result in huge losses for the investors. There will always be an incentive to work at a company’s bottom line and one could argue that this incentive is much stronger when compared to other types of finance.

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