It’s no secret that business leaders are increasingly considering private equity partnerships to support their growth plans. According to KPMG, more than 1,500 UK businesses completed private equity transactions in 2021. But when a business owner or management team has made the decision to take on private equity investment, there are some important steps to ensure they’re well placed to attract the right investment partner to match their ambition. Here, we speak with John Garner, managing partner at LDC, to understand the key considerations for management teams and business owners.
Have the right people in place
Different investment partners will have their own criteria. “For us, management teams that can demonstrate a clear, ambitious growth strategy, and an existing track record of growth, will stand themselves in good stead,” says Garner.
On top of this, it’s also important to have a management team that is supportive of the plan. “When a team is clearly aligned, and it has the drive and capability to deliver that strategy, potential partners will have the confidence to invest.”
Having plans to retain and nurture existing talent while presenting opportunities to bring in new skillsets will prove to investors how much the management team is focused on the long-term success of the business.
Be realistic about your growth plans
It’s important to be able to articulate a clear strategy and business plan, says Garner: “For us, if we can identify how we can support your team, your plans and your strategy, it means we can be sure we’re best placed to support you and your business.
But businesses need to be pragmatic and realistic about their plans. “Don’t build a business plan wearing rose-tinted glasses,” says Garner. “Factor in potential bumps along the road, particularly in the current climate. Forward planning shows an investment partner that you’ve mapped out how your business will grow over the next few years.”
A good investment partner can also help to mitigate some of the shocks along the way, so long as there is a plan for maintaining cash flow through the peaks and troughs. By clearly demonstrating where support will be needed, management teams can set themselves up for success.
Build relationships to succeed
“Private equity is all about building strong relationships,” says Garner. Communication is important for everyone involved. “Management teams need to make sure there is strong chemistry and cultural alignment with the people who will be joining your board and working alongside you for the next few years,” adds Garner.
LDC backed the management team of CTI Group, a fast-growing digital agency, with a £25m minority investment in March this year to help support the next stage of its international growth plans. Having already completed five acquisitions in the past three years, founder Nick Rhind and his team were keen to further expand the business.
“LDC really took the time to get to know our people and our business,” said Rhind.
“They understood the importance of preserving the things that have made us successful as we grow, from our entrepreneurial culture to our focus on client service.”
Nick completed his first acquisition with LDC just four months after the initial investment and is actively exploring new opportunities with the investor’s support.
Focus on the why
Investors will be looking to understand the objectives and motivations for an investment partnership from an owner and the management team. For example, an owner might be looking to take some cash out of the business, to kick-start a succession plan or open up that overseas office they’ve always dreamed about, but don’t have the capital or experience to deliver with confidence. Transaction events can offer management teams the opportunity to get a bigger slice of the cake and access new support and perspectives to help them to deliver on their growth plans.
“When it comes to seeking investment, being open and honest about why you’re looking for investment will build trust with investors and set a future partnership up for success,” says Garner.
Martin McKay, Founder and CEO of Texthelp, came to LDC with a plan to expand the international reach of Texthelp’s leading software products that help people to read and write. “Initially, I was a little concerned that a new investor might come in and try and take over, but LDC made it clear they weren’t about to break up something that was working so well. They weren’t buying stocks and shares; they were backing the management team and our plans.”
Garner concludes, “Deciding to explore private equity partnership is an incredibly exciting time for a business and its shareholders. Take your time and be patient throughout the process so that you secure the right investment partner to support your plans.”
Explore our ‘My Ambition’ series to understand how a private equity partnership has helped some of the UK’s most exceptional business leaders to deliver on their ambitious growth plans.
For any management team interested in finding out more about a private equity partnership, LDC, the UK’s leading mid-market private equity firm, is here to help.