How To Select Private Equity Portfolio Company

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HOW TO SELECT PRIVATE EQUITY PORTFOLIO COMPANY

YOU COULD BE THINKING OF FORMING A PARTNERSHIP WITH A PRIVATE EQUITY PORTFOLIO COMPANY MANAGEMENT TO ENHANCE YOUR COMPANY, WHETHER YOU'RE CONTEMPLATING TAKING IT TO A HIGHER LEVEL. HOWEVER, HOW CAN

CHOOSE THE BUSINESS THAT IS THE MOST EXCELLENT FIT FOR YOUR ORGANISATION

WILL HELP YOU MEET YOUR FINANCIAL AND STRATEGIC OBJECTIVES? FINDING THE

SPOUSE MIGHT BE DIFFICULT BUT UNDERSTANDING WHAT TO SEARCH FOR CAN

REDUCE YOUR SEARCH TIME.

WHAT ARE PRIVATE EQUITY PORTFOLIO COMPANIES

• THE PORTFOLIO COMPANY IS AN ENTITY (PUBLIC OR PRIVATE) IN WHICH A HOLDING COMPANY, ACQUISITION FIRM, OR A VENTURE CAPITAL FIRM HAS STOCK. SO-CALLED PORTFOLIO BUSINESSES ARE THOSE IN WHICH PRIVATE EQUITY COMPANIES HAVE A STAKE.

• ABOUT 35PERCENTAGE TO 40PERCENTAGE OF ALL DEALS INCLUDE PRIVATE EQUITY COMPANIES (OR "PE FIRMS"). THE PE BUSINESS ESTABLISHES A "FUND" BY COLLECTING CAPITAL FROM INVESTORS (SUCH AS PENSION FUNDS, FOUNDATIONS, TRUSTS, & INDIVIDUALS). THE GOAL IS TO BUY BUSINESSES TO PROVIDE INVESTORS WITH THE BEST PROFITS.

TIPS TO CHOOSE THE BEST PE FIRMS

• BASED ON THE COMBINED SKILLS OF THE FIRM'S MANAGEMENT AND INVESTORS, PE COMPANIES MAY POSSESS PARTICULAR EXPERTISE IN TRANSACTION STRUCTURES AND SECTORS. HERE ARE A FEW OF THE MOST CRUCIAL CONSIDERATIONS YOU SHOULD MAKE

WHEN LOOKING FOR A VENTURE CAPITAL COMPANY TO PARTICIPATE IN YOUR COMPANY.

SECTORIAL STRENGTHS

• DISCOVERING THE COMPANIES THAT ENGAGE IN YOUR SECTOR IS THE FIRST PHASE IN

CHOOSING THE BEST PE FIRM; THIS HELPS ENSURE THAT THEY KNOW WHAT MAKES YOUR BUSINESS UNIQUE AND WHY IT MAKES A SOUND INVESTMENT. IF YOU ARE LOOKING FOR A

COMPANY THAT HAS INVESTED IN BUSINESSES LIKE YOURS, KEEP IN MIND THAT MANY PRIVATE EQUITY FIRMS HAVE EXPERIENCE IN A PARTICULAR AREA.

COMMERCIAL CYCLE

• WHICH PRIVATE EQUITY INVESTMENT FIRM IS THE MOST SUITABLE TO WORK WITH YOU

DEPENDS ON WHAT STAGE OF THE BUSINESS CYCLE YOUR BUSINESS IS IN. WHILE SOME CORPORATIONS ONLY AIM TO INVEST IN EXISTING BUSINESSES, OTHERS SPECIALISE IN THE START-UP AND GROWTH OF COMPANIES. DECIDE HOW YOUR BUSINESS WILL EXPAND MOVING FORWARD. TO ACHIEVE THE DESIRED INVESTMENT RETURN, IT IS ESSENTIAL TO CONVEY TO PE FIRMS THE POSSIBILITY OF ONGOING GROWTH.

BUSINESS SIZE

• THE OPPORTUNITY TO SUPPORT THE CONTINUOUS EXPANSION OF YOUR ORGANISATION

WITH ACCESS TO MORE FINANCING IS ONE OF THE MAIN ADVANTAGES OF WORKING WITH A PRIVATE EQUITY PORTFOLIO COMPANIES. FOLLOWING THE AMOUNT OF PLEDGED CASH GENERATED FROM INVESTORS, PRIVATE EQUITY INVESTMENTS ARE AVAILABLE IN VARIOUS SIZES. BASED ON THE OVERALL AMOUNT OF MONEY AVAILABLE, EVERY FUND WILL SET A LIMIT

ON THE PROPORTION OF ASSETS IT MAKES IN EACH FIRM.

ADD-ON VS PLATFORM ACQUISITIONS

• THE INVESTMENT MAY OR MAY NOT BE REGARDED AS A PLATFORM VENTURE FOR THE PRIVATE

EQUITY FIRM ACCORDING TO THE SIZE OF THE BUSINESS. A PLATFORM INVESTMENT OFTEN REFERS TO A MORE PROMINENT COMPANY WITHIN WHICH A PRIVATE EQUITY FIRM

PARTICIPATES AND EXPANDS VIA ORGANIC GROWTH OR BY PURCHASING OTHER BUSINESSES

TO ADD TO THE PLATFORM. THE PE COMPANY MAY IMPROVE THE PLATFORM INVESTMENT VIA ACQUISITIONS, INCREASING THE RETURN ON INVESTMENT.

UNDERSTAND THE KIND OF TRANSACTION YOU ARE LOOKING FOR

• KNOWING WHAT KIND OF INVESTMENT, YOU WANT IS ESSENTIAL WHEN CHOOSING A PARTNER SINCE NOT ALL PE COMPANIES HAVE THE SAME INVESTMENT STRUCTURES. BUSINESS INVESTMENTS MAY TAKE A VARIETY OF SHAPES, AND EACH COMPANY HAS AN ATTRACTIVE INVESTMENT STRUCTURE. DEPENDING ON THE EQUITY'S CONTROLLING OR NON-CONTROL

STATUS, PRIVATE EQUITY FIRMS WILL ENGAGE IN EITHER EQUITY OR DEBT SECURITIES. A VENTURE CAPITAL FIRM'S DEBT ISSUES COULD INCLUDE EQUITY ELEMENTS LIKE WARRANTS AND OPTIONS.

RECOGNIZE THE MANAGEMENT OF THE PE COMPANY.

• BEFORE SELECTING A PE COMPANY, FIND OUT HOW EACH CANDIDATE RUNS ITS PORTFOLIO

FIRMS AND IF YOUR STYLE OF MANAGEMENT IS COMPATIBLE WITH THAT OF THE FIRM. HOW

MUCH WILL THEY BE INVOLVED WITH YOUR COMPANY? OBTAIN RECOMMENDATIONS FOR OTHER CREATORS AND CEOS WHO'VE ALREADY COLLABORATED WITH THE COMPANY, INCLUDING EXAMPLES OF PORTFOLIO FIRMS WHICH WEREN'T SUCCESSFUL, TO ASSIST YOU

IN EVALUATING MANAGEMENT STYLE.

CONCLUSION

• MOST PRIVATE EQUITY COMPANIES HAVE DISCOVERED THAT CONNECTING WITH BANKERS AND CULTIVATING RELATIONSHIPS WITH THEM IS THE BEST METHOD TO KEEP INFORMED ABOUT PROSPECTIVE OPPORTUNITIES IN THE MARKET. BANKERS HAVE A SYSTEM ALREADY DEVELOPED AND ARE AWARE OF WHICH PRIVATE EQUITY FIRMS ARE ENGAGED IN SPECIFIC DEALS.