The Big Advantages of Private Equity for Portfolio Companies

The rewards can be uniquely compelling for business owners who perform adequate research and determine that private equity is a good fit for their companies. Here are a few examples of the upside potential of a private equity partnership to help you get started.

One of the big advantages of private equity for many is that private equity welcomes mature companies, already-public companies, and companies with larger capital needs. Venture capital is often in the spotlight, but it is most appropriate for young companies – start-ups and early-stage private companies on a high-growth trajectory for which the end goal is often IPO. Like venture capital firms, private equity firms provide advising and access to capital that is much more generous than what a bank would provide, but they also typically feature expertise in turnaround strategy for companies that might be struggling to grow or realize profit despite strong physical or intellectual assets. A company that benefits from a private equity partnership does not need to be a proverbial “rocket ship.” It can be a company with good fundamentals but lackluster recent performance due to a misalignment with market changes, or a mature company in a less-visible or capital-intensive sector that has reached its maximum potential to grow on its own.

The big advantages of private equity also include access to more lucrative potential buyers, in the event that the owners of a portfolio company are looking to sell the company or its assets in order to move on to a new endeavor or industry space. A private equity partner can advise business owners on strategy and will typically provide operational recommendations and expertise that help a company to position itself for acquisition or merger. This is often very valuable in the case of a family business in which the owner wishes to retire in the future and there are no members of a younger generation who wish to take up leadership of that particular company. Rather than simply liquidating the company, the owner can work with a private equity firm to develop and execute a plan – typically with a horizon of 4 to 7 years – that optimally positions the company for a successful merger or acquisition. This is also a benefit to employees of such a company, since a successful period of pre-acquisition growth can offer more job security, better compensation, and a stronger resume-building experience than a company that simply closes its doors. Whether your goal is to exploit a large market opportunity or simply to bring your leadership of your private business to a seamless conclusion due to life change, private equity financing can offer significant advantages to companies of many sizes.