Starting a business and helping it grow over many years can be one of life’s most rewarding experiences. On the other hand, even especially successful business owners often reach a point where it feels like a change of direction could be in order.
At such junctures, it frequently makes sense to consult with some experts in private equity to see what they have to offer. There are a number of reasons why it can be productive to negotiate a deal with private equity investors.
Relatively few companies ever reach the point of having initial public offerings, with the vast majority remaining private throughout their lifespans. Although publicly traded firms do account for around one-third of all private-sector employment in the United States, that leaves the rest to companies where shares of ownership cannot be bought on public markets at all.
This might make it seem as if publicly traded companies had definite, unconquerable advantages over those that remain privately held. While there are certainly benefits inherent in going public, private companies have options of their own.
Investors and firms that specialize in working with or taking over privately owned businesses, for instance, oversee an increasingly important segment of the economy. Accounting for somewhere around $500 billion in activity worldwide in 2013, private equity deals are quickly closing in on the trillion-dollar mark.
Business owners who reach a certain stage of life or who simply want to explore new options quite often find that private equity arrangements make excellent sense. Some of the reasons why entrepreneurs and others most often partner or make deals with private equity firms include:
Growth
Even businesses that have ready access to capital in the form of bank loans and lines of credit can find it wise to look for other ways of funding growth. Guarantees, usage restrictions, and loan officers who lack understanding often make turning to private equity investors far more viable. Professionals in the field of private equity tend to be a lot more interested in funding innovative, ambitious ideas than is typical of staid, conservative bankers. Even though a deal will generally mean giving up some equity in a company, the growth it enables can easily repay that many times over.
Liquidity
Selling a business can prove a lot more difficult than expected, even when the firm in question is one of the most competitive in its market. Some investors who approach retirement find themselves feeling forced to stick around to wait for an appropriate buyer. Private equity investors will often be a lot more responsive than other potential buyers and be better funded, as well. Having access to liquidity on demand might be the key needed to segue gracefully into a new stage of life.
Expertise
Even especially successful entrepreneurs can easily find themselves reaching their limits at certain points. Bringing on a private equity partner can provide access to highly developed skills and huge amounts of relevant experience. That will sometimes allow a business which had started to seem a bit boring or stagnant to become every bit as thrilling and full of potential as it had been in the past.
For reasons like these and a number of others, business owners regularly find that it makes excellent sense to at least look into what private equity investors might have to offer. Although there will sometimes be more appropriate options, entrepreneurs in a wide variety of common situations more and more often opt to sign private equity deals, as the statistics show.