Private Equity Firms

Private equity firms make investments in companies using a number of different things from venture and growth capital to leveraged buyout. A private equity firm is seen as a financial sponsor for a business as they provide you with the funds you need and can help you with investment strategy decisions.

When you turn to private equity firms to help your business, you need to be prepared to pay a management fee and provide the firm with their fair share of profits they earn from the interest of the equity fund. There are several different ways in which private equity firms work including the following:

• IPO or Initial Public Offering - These are shares of the company that are offered to the public.
• Merger or acquisition - This is when your company is sold for cash or shares in another company.
• Recapitalization - this is cash that is distributed to the shareholders. The cash is raised from debt or securities in order to send it out to the shareholders.

So why do private equity firms what to help your business? The reason you need to look into private equity firms is because they are seeking to add more businesses to their portfolio as you provide them with potential growth in a 3-5 year time span. They offer you the money to fix and grow your business so you can sell it off for a nice profit in the future.

To find the right private equity group, you need to know what to look for. Most private equity groups will only invest in mature businesses. They need to make sure you already have established your business credit and that you already have a strong customer base to work with.

Private equity firms shop around to find a business that has a strong management team with the ability to generate a healthy cash flow. They will seek out businesses that are on the verge of growth but just need the extra financing and advice to get there. They will also look for businesses that have a perceived level of value in the industry. The one thing private equity firms will always have is a clearly defined exit strategy.

Here are some easy tips you can follow when you are seeking out a private equity firm to help your business:

• Create value - the best way to get a company to invest in yours is to offer them some type of value. They are on the look out for a business that is worth their investment. They look for what is known as a platform company which is a solid company with growth potential.
• Strong cash flow - private equity firms are also seeking a company that has a strong cash flow. They need to see that the money they offer to you is not going to fall away. Having a strong cash flow shows that you will easily be able to repay the loan in a timely manner. Cash flow is how you prove to lenders that you can provide a strong return on investment. What are you doing to strengthen your cash flow right now and what do you plan to do to strengthen your business in the future?
• Exit strategy - you always need to have an exit strategy for the private equity firm. The exit strategy provides your financial sponsor with the finalization of your investment and how you will distribute the profits to others. Profits within the exit strategy will go into the firm to fund new acquisitions where they will be able to make more money within a few years.

Corporate Credit Concepts specializes in private equity firms. For more information about private equity firms and how it might benefit your business, please CLICK HERE for a free phone consultation.

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