Saying that your company is owned by a private equity firm brings various connotations; aggressive business tactics, hard nosed negotiators, asset stripping and huge buyout deals.
Most private equity investors look for established, growing companies in a sector with good momentum. They will, in most cases, look to own a majority share of the business and hold the investment between three to five years. Private equity funds are infamous for using debt and complex financial engineering to greatly enhance their returns and this is an important mechanism for them to profit from their investment.
As a manager at a PE backed business you will have ambitious targets to hit and deliver on very high growth rates within short timelines. Operating in such an environment can be ruthless; funds are able to quickly replace managers who do not deliver and are not afraid of acting swiftly. PE funds have very specific visions for their portfolio businesses – and leaders must be there solely to execute this vision. This article by McKinsey identifies some further insights into unique challenges faced by CEOs in PE businesses.
While this aggressive approach has worked in the world of mega corporations, traditional private equity investors tend to misunderstand the SME world which requires far more agility, entrepreneurship, and long term vision.
While Fordhouse makes no secret about its nature as a private investor (a lot of our legal structure is similar to other PE businesses) we are trying to bring a fresh approach to SME investing. Management teams in our partner businesses have access to our team of specialists to greatly enhance their execution while our investment team is able to assist those who are looking to scale through acquisitions.
Most importantly, we believe in giving individuals within businesses a chance to prove themselves and their vision for the organisation and will only bring in external senior hires who we believe can complement existing teams. Our returns are driven solely by the success of the underlying business rather than leverage and we are keen for existing owners, management teams and employees to share this success.