Colin Bennett, investment director at LDC, outlines the opportunities private equity can offer ambitious management teams seeking to attract investment.
Scotland has long boasted an impressive array of mid-market businesses across a broad range of sectors. From our long-standing heritage in the oil and gas industry to the burgeoning green energy sector, right through to the fast-developing technology hub of Silicon Glen, which is home to the likes of digital leaders such as Skyscanner, Codeplay and Dynamo Games. The Scottish business environment shows no signs of slowing.
However, without the right type of support, rapid growth can often present a real challenge for any business. While growing organically can get you so far, a business often needs an injection of funds to give it that all-important step change and it’s here that private equity can make a real difference.
A private equity partner offers a reliable source of financial support and brings added operational expertise to the table, which can have a transformative effect and help to turbocharge growth.
For the many high quality firms in Scotland seeking investment, there’s only a handful of private equity specialists with a presence on the ground and it’s important that those looking for investment have a handle on the different funding options available. Bringing a trusted private equity partner on board is not a snap decision, but there are steps which management teams can take to help ensure that they are attracting the right kind of investment partner.
Creating a robust business plan is the first place to start. This may seem obvious but is perhaps the most vital and commonly overlooked step by management teams. Firms should have a clear vision of how the business should look in the future, as well as a solid understanding of the growth opportunities over the next two to five years and a clear strategy for how to capitalise on these.
Scotland’s leading optical provider, Duncan & Todd, which has been backed by LDC, the private equity arm of Lloyds Banking Group, since March this year, did this particularly well. The Aberdeen-based firm’s management team had a clear plan in place from the outset and knew how it would increase its national footprint through a buy-and-build strategy.
The team had already identified businesses that would complement the Duncan & Todd Group, which meant it could kick-start its expansion plan quickly with the acquisition of Dempster Opticians.
Secondly, management teams need to have their house in order and ensure the books are in good shape. It’s important to show forecasted profit and revenue growth and be able to stand up to the rigours of due diligence from any potential investor.
A prospective investment partner will also look for a clear management structure and a team committed to the growth of the business. Having this structure in place will reassure investors that the leadership team is committed and able to deliver on plans. For those business owners looking to take a step back after investment, having a succession strategy in place is just as important and gives an investor confidence that the future growth of the company is in safe hands.
It is also important to set a business apart from its competitors – this helps to demonstrate growth potential. To do this, the management team needs a clearly defined market proposition. This is a key differentiator for those looking to invest and showcasing a firm’s expertise or capabilities in a specific area will help attract the right investment partner – often one that has a track record of delivering growth in this area.
Management teams should also engage the support of quality advisors. The right team of consultants, corporate finance advisors and lawyers are instrumental in any investment process. We’re lucky in Scotland to have a tight-knit corporate finance community, with invaluable knowledge about what it takes to succeed in business, both in the domestic market and beyond.
Lastly, it’s important not to rush into a deal. Any good investor will spend time getting to know a management team, taking an interest in what drives them and what makes a business tick. This is a two-way street, and management teams should make sure they’re comfortable working with the investing party. When a private equity team and a company fit together perfectly, it can have a transformative impact.
For business leaders with big ambitions, the backing of a private equity investor can provide the essential financial support and strategic partnership required to turbocharge a business’s growth strategy.
Having a clear vision for the future, a winning management team and a structured plan to make ambition a reality is crucial to attract investment.