A Guide to Private Equity - BVCA admin

Your relationship with
your investor
Private equity for growth and success
Private equity investment has been demonstrated to contribute significantly to companies’ growth.
Private equity backed companies outperform leading UK businesses.
The “2007 Economic Impact of Private Equity in the UK” shows that the vast majority of companies
receiving private equity believe that without private equity they would not exist at all or would have
developed less rapidly. Furthermore the report consistently demonstrates that private equity-backed
companies increase their sales, exports, investments and people employed at a considerably higher
rate that the national average.
While the growth and success of these companies owes much to private equity investment, enabling
them to achieve their full potential, the non-financial input by the private equity firm is also a very
important contributor. The private equity firm’s involvement generally does not end following the initial
investment. Of the private equity backed companies analysed in this survey, annually over threequarters
say that their private equity firms make a major contribution other than the provision of money.
Contributions cited by private equity-backed companies often include private equity firms being used
to provide financial advice, guidance on strategic matters, for management recruitment purposes as
well as with their contacts and market information.
Most private equity firms’ executives have a wide range of experience. Many have worked in industry
and others have a financial background, but what is more important, all have the specialist experience
of funding and assisting companies at a time of rapid development and growth. Levels of support vary,
however, ranging from “hands-on” to “hands-off”.
Hands-on approach
• A “hands-on” or active approach aims to add value to your company. In addition to advising on
strategy and development, including in such areas as entering new markets, overseas expansion,
acquisitions and hiring new management, the private equity firm will have many useful business
connections to share with you, possibly including introductions to potential customers, suppliers,
headhunters, acquisition candidates and even to other private equity firms in connection with
syndicating financing rounds.
• The private equity firm aims to be your business partner, someone you can approach for helpful
ideas and discussion. The investor can act as a coach or mentor to you and your management
team. Backing from a private equity firm can provide credibility and status in dealing with third
parties. A hands-on investor is particularly suited to a company embarking on a period of rapid
expansion. However, day-to-day operational control is rarely sought. In order to provide this
support, some private equity firms will expect to participate through a seat on your board. The
director may be an executive from the private equity firm or an external consultant and fees will
need to be paid for the director’s services.
• The private equity firm will expect to:
• Receive copies of your management accounts, promptly after each month end.
• Receive copies of the minutes of the board of directors’ meetings.
• Be consulted and involved in, and sometimes have the right to veto, any important decisions
affecting the company’s business. This will include major capital purchases, changes in strategic
direction, business acquisitions and disposals, appointment of directors and auditors, obtaining
additional borrowings, etc.
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