Using Private Equity To Grow Your Company
Private equity refers to an alternative investment class that consists of capital which is not listed on a public exchange.
After recently overtaking South Africa to become Africa’s largest economy, there is still a great deal of uncertainty by global companies about investing in Nigeria. However, despite the challenges Nigeria is experiencing, its underlying economical values are too numerous to ignore.
As an investor or entrepreneur in the country, there are of course new heights one would be dreaming to attain. And also, as an entrepreneur experiencing challenges in his or her business, there are certain assistance one would need as regards reviving his or her company.
This article, thus, describes the essence of Private equity as a profitable means of developing your company.
Private equity refers to an alternative investment class that consists of capital which is not listed on a public exchange. It is put together by investors that directly invest in private companies or engage in buyouts of public companies, resulting in the delisting of public equity.
Institutional and retail investors provide the capital for private equity, and the capital can be utilized to fund new technology, make acquisitions, expand working capital, and to bolster and solidify a balance sheet.
To put simply, Private equity typically refers to investment funds generally organized as limited partnerships, that buy and restructure companies that are not publicly traded.
As an entrepreneur facing numerous challenges to adequately fund the growth of your business or seeking funding to start up your business, here are some reasons you need to consider Private equity:
Source of Liquidity
Private equity gives your company the chance to liquidity as an alternative to conventional financial mechanisms, such as high interest bank loans or listing on public markets.
In order to save you an extended term of fruitless investments by borrowing loans to fund your placid businesses, Private equity provides the opportunity to liquidate and sell your assets at relatively profitable rates.
Private equity enables your company with venture capitals to finance ideas
Certain forms of private equity, such as venture capital, also finance ideas and early stage companies. In the case of companies that are de-listed, private equity financing can help such companies attempt unorthodox growth strategies away from the glare of public markets.
Aligning Interests
Fida Chaaban in an article on entrepreneur.com states that “PE (Private Equity) firms will spend considerable time upfront to draft a proper business plan and a clear longterm incentive plan (LTIP) to ensure that management have clear goals to strive for and if they achieve them, the long-term incentive plan will ensure that they are properly rewarded accordingly.
By clarifying the long-term goals and linking financial rewards to them, PE firms ensure that the management team is properly aligned and everyone is working towards the same goals.
Most long-term incentive plans include a cash (bonus) component and a stock component, which vests over time. Naturally, management is not allowed to sell its shares in the company until a proper exit is secured and both the PE firm and management are able to sell to the next buyer at the same time.
By focusing together on the end financial result, the PE firm and management are completely aligned and share the same financial interests.”
When moving into the realm of private equity, it can be difficult to determine which are good investments and which are not. Every investment comes with risks.
However, the above guidelines are no doubts, reasonable tips to help you develop and grow your company even as you invest in other public companies to keep a balanced investment spread.
Written by Lawretta Egba.