Insights from the PE industry's peak body
What does the peak body representing private equity and venture capital in Australia say about securing capital for growth? We speak to Yasser El-Ansary, Chief Executive of Australian Private Equity & Venture Capital Association Limited.
Yasser El-Ansary is the chief executive of the Australian Private Equity & Venture Capital Association Limited. Yasser is a chartered accountant and has spent more than two decades working closely with a wide range of small, medium and large businesses across a variety of industry sectors.
What private equity is all about
The business model of private equity is very straightforward: it involves professional and experienced investment managers putting equity capital and strategic support into a business to help that business grow and expand over time.
The types of businesses that generally make good candidates for private equity investment are those that have strong foundations and a track record of performance behind them, but are being held back from realising their full potential because they don’t have sufficient capital, or they lack the expertise and strategic support needed to be able to establish new product lines, develop facilities to grow output, or get a foothold into new markets within the region, or around the world.
Some may see private equity as being exclusively focussed on investing into large publicly-listed businesses, but in actual fact, most private equity investment in Australia is concentrated around small to medium-sized enterprises, across almost every industry sector of the economy.
The business model of private equity is very straightforward: it involves professional and experienced investment managers putting equity capital and strategic support into a business to help that business grow and expand over time.
The types of businesses that generally make good candidates for private equity investment are those that have strong foundations and a track record of performance behind them, but are being held back from realising their full potential because they don’t have sufficient capital, or they lack the expertise and strategic support needed to be able to establish new product lines, develop facilities to grow output, or get a foothold into new markets within the region, or around the world.
Some may see private equity as being exclusively focussed on investing into large publicly-listed businesses, but in actual fact, most private equity investment in Australia is concentrated around small to medium-sized enterprises, across almost every industry sector of the economy.
Unlocking growth opportunities
Over the years, thousands of great family businesses in Australia have partnered with private equity investors to unlock and realise the growth potential of their business in a variety of different ways.
There are many examples of family businesses that, having been nurtured through their growth by the founders over the course of one or maybe two generations, get to a point where their capacity to grow further is constrained by one or more factors. It might be that the business doesn’t have sufficient capital to fund the next phase of growth, or it could be that the strategic support they need to define and execute on their expansion plans is not available within the existing management team. These are the types of situations where private equity investors can add considerable value as a long-term investor and partner in the growth of the business.
One of the very important attributes of private equity investment – which is uniquely different from all other forms of equity investment – is the fact that the investors can take a ‘hands-on’ approach to helping to grow the business with the founders and management teams. There is considerable flexibility about the approach they can adopt to doing that. Some private equity investors will look to take a majority stake in the business, whilst others will be looking at opportunities to be a minority shareholder: different strategies can be used to achieve the businesses long-term objectives, much depends on the circumstances of the business, and the in-house capability that might already exist within the management team.
Private equity investment can be a very effective mechanism by which to manage succession and leadership transitions within a family business. Having an outside strategic investor like a private equity firm partner with the founder can ensure that the right skills are brought into the businesses to maximise the potential of that business to continue to grow in a sustainable way once the founders of the businesses move out of executive roles within the company. Private equity investors can help to nurture second or third generation family members to step into management roles within the business, benefitting from the stewardship and guidance of experienced business executives.
A strong partnership
Success in any business venture generally comes about from a foundation that is built on a partnership between people who bring together skills and experience to make the whole: private equity investment is no different.
As a business owner, you should ensure that any private equity investors you bring into the business are a good all-round fit for what you need. Take time to meet with the potential investors many times over a period of time, and in those discussions you should explore the specifics of how the investors will bring strategic support to help grow the business. Ultimately, the private equity investors need to be able to demonstrate the skills and experience they can bring to you, and share examples of how they have delivered value to the businesses they invested into in the past.
There should be a really strong personal connection between the founders and management team, and the private equity investors. It’s critical that each side understands the challenges, concerns, and objectives of the other. It’s a bit like trying on an item of clothing, have a look at the options, but in the end make sure you go with the option that is the best fit for what you’re looking for.
