Understanding a PE partnership and what to look for

As a Partner in a Private Equity firm, I’m sure my response is far from objective when I’m asked by an entrepreneur “Should I consider Private Equity as an option for my business?”. Though what I’m also sure about is that the answer is yes.

So why consider Private Equity?

At a macro level, there are unprecedented levels of private markets capital being raised, even since the start of the pandemic, with Private Equity driving that growth; there is huge uninvested firepower in the market – good news for those looking for investment.

Private equity can fuel ambitious businesses and unlock growth potential. This might be by providing capital for growth or acquisitions; allowing shareholders to de-risk and remove some eggs from their one business basket; or getting equity into the hands of those driving value growth. It does this whilst allowing the business to stay independent, and the rewards for management teams – professionally, financially and personally – can be extremely attractive.

Private Equity also brings more than capital. It can be an effective, entrepreneurial, (constructively) challenging, aligned and supportive backer who acts quickly and brings experience, expertise, resources, a network and a bank of learnings to benefit the business whilst working towards a common goal.

Not if then, but who…

As the Private Equity industry has grown and matured, it’s become hugely varied. The range of firm types, sizes, investment strategies, geographic focus, styles, cultures and specialisms is vast. That’s great for business owners but clearly also brings complexity. This, combined with the fact that the sale of all or part of their business may be a once in a lifetime decision for an entrepreneur, means the stakes are high.

The far more important – and far more difficult – question is therefore which Private Equity partner should I choose and why?

What to consider in choosing a Private Equity investor

1. The facts – There are factual aspects to consider in matching up with potential investors – the size, sector and geographic focus of your business; the nature of the business plan; what the management team would like to do going forward; how much capital is being sought; and the key considerations in structuring a deal. Also look at how successful the investor has been, their track record and the funds they have available to invest over the medium term.
   
   
2. More than money – Next, think about what additional help you’d like (and as importantly, wouldn’t like) from an investor; what expertise and experience is not already around the Board table that would help the business achieve its plans?
   
   
3. Style and approach – Finally, and most importantly, how will the investor behave – both to get the deal done and beyond? How does an investor’s style, culture and values align with your own? Will they be straightforward to deal with? Who will I deal with now and in future? Will I enjoy working together?

And how do you really answer those questions?

Getting a genuine feel for the answers to those questions is about taking references, taking advice and taking time. Do due diligence on potential investors while they do their work on you!

Firms often look very similar on paper but what this means in practice and how they behave in day to day interactions varies enormously. Spend time with the Private Equity team in different scenarios and the importance of in-depth referencing can’t be emphasised enough.

And how does GCP stack up against these considerations?

1. The facts – We partner with ambitious entrepreneurs in outstanding growth businesses. We typically invest £10-50m for a 30-65% equity stake. The businesses we back are UK-headquartered but often international in reach and are within technology, services and specialist industrial sectors.
   
   
2. More than money – We have a 22-year track record of supporting founder-led businesses to achieve their growth plans and therefore bring extensive experience of working with teams to anticipate and successfully navigate the opportunities and inherent challenges as a business quickly scales.
   
   We are often asked to draw on that experience – our Growth Toolkit – to help drive growth. We also have an extensive network upon which the businesses in which we are invested can draw.
   
   At the same time, we are mindful and respectful of the success teams have had; we are keen to be involved wherever we can add value but won’t interfere in the day-to-day running of the business and certainly won’t try to tell management teams what to do!
   
   
3. Style and approach – An aspect that sets us apart is that we are passionate about creating genuine partnerships. We recognise the importance of being easy to deal with in a fast growing, entrepreneurial business – we are well known for being pragmatic, jargon-free and for doing what we say we will. Management teams deal directly with decision makers – we are a collegiate, owner managed team ourselves – and our culture is to strive to do the right thing by all. We are also a stable and committed team and only invest in a small number of businesses. Each member of the team invests personally in all deals, so each investment is incredibly important to us.
   
   Ultimately, we are focused on people and culture, and believe a successful partnership starts with the relationships formed from day one; trust, chemistry and alignment is fundamental.

Read more about our partnership approach

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