How to choose the right PE firm for your business. Part 1.

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In the first article in this two-part series, former Entrepreneurs Panel member, Bill Collis shares decades of private equity and CEO experience to help you choose the right private equity firm for your business.

Your business is growing rapidly and private equity (PE) offers a way to scale even faster and with greater certainty. You know that the final decision about who you work with will mainly be influenced by the financial deals available. Yet focusing solely on the money is a risky strategy because successful PE partnerships rely on a range of other factors to work.

Beyond the money, what else should you think about when choosing the right PE firm for your business? In this article, I cover three fundamental considerations that should influence your choice.

Consideration #1: size

Which will work best for your business? A mammoth multinational PE company used to billion dollar deals, a single-country firm that restricts the businesses they deal with based on revenue, or something in between?

The answer lies in the size of your business and what you’re looking for from an investor.

Let’s say your business has a turnover of £20 million. You could seek backing from a large fund that typically supports firms with £100 million turnover or more. In this case, you might find you’re a small minnow in a big pond. And that the fund and the investors tend to focus on bigger, potentially more lucrative, businesses.

However, if you’ve got ambitions to be a £100 million business in three years’ time, a large firm experienced in supporting bigger organisations could be a good home.

Your choice will be influenced by the degree of support you’re looking for from your PE partner. If assistance is high on your wishlist, you’ll need to pick a PE firm that targets businesses of your size. But if your interests are mainly about the money and you want a fund to grow into, a larger PE firm could be right for you.

My top tip: choose a fund that’s genuinely interested in a company of your size.

Consideration #2: sector and expertise

Another major factor in your decision-making process will be the type of firm you partner with:

Generalist funds:

  • Successfully invest in a wide range of different businesses, including specialist firms
  • Have a range of ex-CEOs and ex-business leaders who can provide a broader range of expertise

Specialist funds:

  • Are mandated to deal only in a specific industry, like tech, so they won’t touch businesses outside their chosen area
  • Typically support your business with people, partners and employees who understand your specialism inside and out

As a CEO, you’ll want a PE company that can help you grow really fast. As you expand, there will be lots going on with loads of moving parts. A specialist PE partner that’s been there and done it before, can often offer a shortcut. When you’re about to make a complicated decision, they’ll draw on their experience to recommend a specific route. And that can save you months of additional research and thinking.

On the other hand, generalist PE firms may bring different perspectives rather than defining problems through a niche lens. This could work for you if your business is stocked to the gills with leading specialists and you need more generalist knowledge.

My top tip: take time to understand the expertise of the person and the partner leading the deal. They will be your main point of interaction with the fund so their background is super important.

Consideration #3: geography

There are a lot of very good Silicon Valley or US-based PE funds that really understand technology and love investing in UK businesses. But if they’re eight hours away timezone wise, should you or shouldn’t you work with them?

A reasonable amount of interaction with your PE partner is necessary. So, I believe that the closer you are, the better. If you’re in the same city, you can effortlessly have lunch or coffee and, if you’re in the same country, face-to-face meetings are also practical.

It’s only when you get to much bigger deals that working with a PE company from further away becomes less problematic. That’s because your interactions – like board meetings – will be more formal and less frequent.

Some overseas firms have realised the value of easy face-to-face interaction and set up offices in the UK. So you could work with an overseas PE firm and find they have a small satellite office in the UK with local people to help.

My top tip: while there’s definitely an attraction to Silicon Valley expertise, it comes with a health warning that they’re a long way away and might not provide the support you need.

These three features are principal considerations in the process of selecting the right PE firm. But they’re just the starting point. I believe there are eight more angles to think about and I’ve clustered them into one further article.

Part 2

To read about the importance of people and relationships to successful PE partnerships click here for the second piece in this series.

ABOUT THE AUTHOR

Bill Collis

Bill Collis

A software engineer turned growth CEO, Bill brings international sales experience and a deep understanding of scaling technology companies. Bill was a member of our Entrepreneurs Panel from 2016 to 2020.