Is Private Equity Right for Your Business?
Many companies look to private equity investment as a viable source of financing. But is a PE investor always right for the business?
BUSINESS ARTICLES & VIDEOS
Amr Rakha
2/29/20241 min read
Private equity investment is a compelling choice to raise capital. However, choosing private equity requires an assessment of the business's current position, its growth objectives, and the alignment of interests with investors. Owing to our unique expertise in working with private equities and Egyptian clients, ๐๐ง๐๐ซ๐ข ๐๐๐ฉ๐ข๐ญ๐๐ฅ is well poised to provide insight into the topic. Let's delve into it:
๐๐ซ๐ข๐ฏ๐๐ญ๐ ๐๐ช๐ฎ๐ข๐ญ๐ฒ: ๐๐๐ญ๐๐ฅ๐ฒ๐ฌ๐ญ ๐๐จ๐ซ ๐๐ซ๐จ๐ฐ๐ญ๐ก
Private equity makes more sense when:
1. ๐บ๐๐๐๐๐๐๐๐๐๐ ๐๐ ๐๐๐ ๐ฎ๐๐๐: Private equity provides an injection of capital that can fuel rapid expansion, which is ideal for businesses with a proven track record and a scalable model.
2. ๐ฌ๐๐๐๐๐๐๐๐ ๐๐๐
๐ฎ๐๐๐
๐๐๐๐ ๐๐๐ ๐ต๐๐๐
๐๐
: Private equity firms bring valuable industry expertise and management guidance, as well as access to networks to expand the business. This provides a guide for businesses to deal with complex decisions.
3. ๐ฌ๐๐๐ ๐บ๐๐๐๐๐๐๐ ๐๐ ๐๐ ๐๐๐ ๐ฏ๐๐๐๐๐๐: Private equity offers an attractive exit strategy for founders or early investors seeking liquidity, allowing them to cash-out while maintaining business growth.
๐๐จ๐ญ๐๐ง๐ญ๐ข๐๐ฅ ๐๐ข๐ญ๐๐๐ฅ๐ฅ๐ฌ ๐จ๐ ๐๐ซ๐ข๐ฏ๐๐ญ๐ ๐๐ช๐ฎ๐ข๐ญ๐ฒ:
Private Equity is not the right fit when:
1. ๐ณ๐๐๐ ๐๐ ๐ช๐๐๐๐๐๐ ๐๐ ๐ผ๐๐๐๐๐๐๐๐๐๐๐: Accepting private equity investment may mean relinquishing some control over the business. This is a problem if maintaining control is important for the founders.
2. ๐บ๐๐๐๐-๐ป๐๐๐ ๐ญ๐๐๐๐ ๐ช๐๐๐๐๐๐๐๐ ๐๐๐๐ ๐บ๐๐๐๐๐๐๐: Private equity investors may exert pressure for short-term profitability, which can conflict with long-term strategic goals, hindering sustainable growth.
3. ๐ฐ๐๐๐๐๐๐๐๐ ๐๐๐ ๐ด๐๐๐๐๐๐๐๐๐
: Conflicts of interest can arise if the goals and objectives of the private equity firm don't align with the business's mission.
๐ ๐๐๐๐ฅ ๐๐๐ฌ๐ ๐๐ญ๐ฎ๐๐ฒ ๐๐ซ๐จ๐ฆ ๐๐ ๐ฒ๐ฉ๐ญ:
Company X relinquished the majority position to a private equity investor. The strategy moving forward was not clear, and one of the founders found the private equity to be a limiting factor in the companyโs continued growth, objecting to decisions involving capital expenditures for new product lines. This founder eventually decided to exit. Company X attempted twice to IPO as an exit strategy, and both attempts failed.
This quick guide should help you decide if private equity is right for your business.
