Private capital is often available to fuel accelerated growth and provide the current shareowners with liquidity, wealth diversification, further opportunity for capital gains, and continuation of the entrepreneurial corporate culture while also providing the company with a stronger advisory board for strategic decision making.

Successful entrepreneurs often have 80% or more of their net worth tied up in an illiquid single security in a company that is also usually dependent upon their ongoing personal involvement.

Selling some equity to the right financial partner provides entrepreneurs with personal liquidity, wealth diversification, and lifestyle choices, while extending their opportunity for further capital gains as the company grows.

Although the current owners will have a smaller slice of the equity “cake” following a private equity recapitalization, within a few years that “slice” could be worth considerably more than the whole “cake” was before the recapitalization transaction.

Benefits of a Private Equity Investor

A private equity investor works to increase the company’s value through active participation on the company’s Board to develop and execute achievable plans and targets.

  • Private equity-backed companies have a limited number of highly-motivated shareholders, including management, all working together to achieve the same objectives in an entrepreneurial environment.
  • These shareholders all carry the same business risks and expect high returns in the long run.
  • Private equity managers often contribute industry knowledge and contacts, financial expertise, lender relationships, and advisory skills.

While they do not exercise day-to-day management control, they have access to high caliber management talent from around the world for portfolio companies and they bring capital resources to fuel accelerated growth.

  • Companies backed by private equity can grow, or be restructured, confidentially – out of the public eye, and that of competitors. Of course, customers may be comforted to know that the company has attracted private equity backing to fuel growth.
  • Private equity firms are attracted to companies with effective ongoing management, a sustainable competitive edge, growth potential, a fair valuation, and well defined exit alternatives. Private equity managers conduct detailed market, financial, legal, environmental and management due diligence before investing, so they understand the specific risks and opportunities of the investment they are making.

The private equity firm is an equity business partner and is rewarded by the company’s success, generally realizing a capital gain upon a subsequent transaction.

Since private equity firms are financial investors, entrepreneurs can rely on their private equity partner to drive the next liquidity event on a timely basis, usually another recapitalization or a sale to a strategic buyer.

Of course, a subsequent recap transaction affords management yet another opportunity for partial liquidity with ongoing equity participation in the company.

A recap with the right private equity firm can provide personal liquidity for the current shareowners, strategic and financial resources for the company, and equity participation and rewards for key managers.

For more information, contact our team of industry experts at Impact Capital Group

Michael Cohen

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