Could your business grow with flexible funding from private equity?
The uncertainty created by the pandemic has seen an increase in innovative deal structures.
During the pandemic businesses have been able to continue raising funds – both debt finance and growth investment – from government, banks and private investors.
Indeed, there are more private investment sources for UK businesses than ever, and there is continued strong appetite from private equity and venture capital firms to back strong management teams.
In the private equity space, we are seeing more innovative deal structures that offer a greater level of flexibility to business owners, created to accommodate the current economic uncertainty. Flexibly-structured equity partnerships, or ‘Cash Out’ deal structures, are one source of funding for SMEs.
Equity Partnership or ‘Cash Out’ Deal Structures
These equity partnership structures – where business owners sell a stake to an equity investor in return for investment or a partial release of value – offer some interesting benefits that are worth considering.
They can bring in cash or capital to bridge a funding gap whilst trading remains challenging, particularly if other sources from government or banks are not available.
Private equity investments can happen faster and often bring additional strategic benefits such as non-executive involvement and wider networks.
For owners who are looking for a sale but are concerned that now is not the right time to maximise their return, a partnership structured deal can enable a staged approach rather than an immediate full exit that crystallises value at lower than the maximum achievable.
Equally, for owners who want to sell but who have not found a suitable buyer, a flexible equity deal means they can realise some value now, whilst continuing to explore options and enhance the business.
And for owners considering a sale over the next few years but concerned about anticipated tax rises, a partial equity ‘cash-out’ deal means capital gains are crystallised at current rates.
The owners personal exposure to risk, particularly in the current economic conditions is reduced, whilst still retaining a stake in their business.
For growth investment, an equity share deal that brings capital to enable the owners to drive the business forward means they will potentially be in a strong position in the future to secure additional funding on the strength of a positive trading performance, or potentially pursue any M&A opportunities of their own.
Equity partnerships can give business owners access to a range of support and expertise from experienced investment professionals and their networks.
The Benefits to Investors
Many analysts believe the longer-term recovery of the UK economy relies on the prosperity of SMEs and high-growth firms. In our ongoing discussions with our investment partners and networks across a variety of sectors, we know many private equity and venture capitalists share this view. Investing now, with a flexible approach, will benefit all stakeholders over the medium term.