All change for Private Equity?

We all rely on the venture capital and private equity sector to provide funding to SMEs which provide the majority of the UK workforce with their employment. So what is shaping the future for these industries in 2012 and beyond?

The lack of bank lending for smaller businesses has opened up opportunities for Private Equity funding and despite the uncertain economic forecasts appetite for investment in the PE community remains high1. However the sector itself is facing its own challenges and we are seeing new directions and the need for new capabilities amongst the leading investors.

With less opportunity for making a fast buck and the dependency on successful exits for raising new funds, a new breed of PE investors are coming to the fore. Investors come to the party armed not just with money but also with experienced, well connected general managers with a passion for building something of value - something that lasts. Some might consider this new breed as private equity returning to its roots – where firms invested in companies for the long term rather than relying on quick wins achieved by financial engineering and ruthless restructuring of mature companies to sell them at a high profit.

This new breed of private equity means that ruthless cost cutting has taken a backseat and CEOs of portfolio companies are greeted with a more collaborative relationship which suits the needs of entrepreneurs, who are looking for more active guidance in addition to funding2. This approach is good news for those who are in business not just for the money but for learning and enjoying the experience as they go. Women entrepreneurs, now 29% of the UK’s self-employed population, are likely to view the private equity option as a more interesting option than traditional bank funding. Research suggests that women are more likely to view access to finance as a problem and are less willing to take on debt to grow their businesses3. Women also have a different style and are hungry for feedback which the new breed of private equity investor can provide.

Funding for growth in new ventures, turnarounds and integration can only be positive for the future of Britain’s economy. Funding combined with active leadership and change management support will hopefully mean that in future PE houses will not be adorned with trophy cabinets signifying the deals done but rather will sport pictures of the people that they have employed, the communities that have been created and the business leaders that they have helped to develop.

References:

  1. Lex (2012) Private Equity, not dead, just sleeping [online], London, UK http://www.ft.com
  2. Change in the Air for Private Equity BDO Private Equity Survey 2011/2012
  3. John Walker (2012) Don’t underestimate the power of women [online] London, UK.