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While the businesses may be kept in the family, the next generation are increasingly choosing a different direction.
In this situation, finding an external investor can be the best way to exit the business and put it on a new footing.
Private-equity investment has grown to become a mainstream option for business owners. Nearly 1,000 industrial companies are owned by UK private-equity firms, with 121 businesses having been acquired in 2015 with a total value of £850 million, according to the British Private Equity & Venture Capital Association (BVCA).
However, many people still believe that private investors simply buy companies to dismantle them and strip them down for profit. There is a fear that they will destroy the value of a business that an owner may have spent their lifetime building up.
But that view is outdated – it is based on the behaviour of investors in America around 30 years ago. Nowadays, most private-equity firms are looking for market-leading companies in attractive fields, where their investment will take a good business and turn it into a great one.
Seeking out some corporate finance advice is a sensible way to start. Private-equity firms are always looking for direct relationships with business owners – the BVCA website is a good place to find the names of some investors to contact. Here at CIL we are well-placed to direct people to the best investor for them. We also often work with management teams and business owners years ahead of a sale, helping them to get their company into a shape that is attractive for investors.
But, before you begin to look for private equity, it is important to think about the type of investment that is right for you. Some investors focus on being hands-on while others prefer to stay at arm’s length and let the management team run the business. Some really like to drive growth by internationalising the company and entering new markets, while others prefer to help the business focus on what it is doing now but better to gain a bigger share of the existing market.
Once you’ve decided on the kind of investor you need, you must take time to get your business in order and maximise its value for investors. You need to understand what your value proposition is and what sets you apart from competitors.
What do you do that makes your customers’ lives easier or better? Is your product superior and have you got specific technology or know-how that allows you to develop it? It could be that you provide a good-quality product that focuses around a reliable service or that you deliver a product exactly when it is needed in time-critical situations. Or maybe you offer an excellent after-sales service.
While the management team may have some understanding of what your unique selling point is, asking what your customers think is the most valuable aspect of your company can often come up with things that you haven’t even thought of before.
Looking at the bigger picture will help to find ways to run your business more successfully and make it a more attractive investment opportunity.
The most important thing to remember is that, even if you’re not considering selling your company, business owners must be proactive and make sure the firm is running as effectively as possible. That can make a significant difference to the value of a business and will help attract the right investors when you are ready.