Considerations when choosing a private equity partner

Private equity (PE) investors are demanding of businesses seeking their funding. As part of pre-term sheet conversations, management teams are challenged on everything from past career history through to market growth rates and expansion strategies. However, raising private equity funding is a two-way transaction and initial diligence should naturally flow both ways. Not least because PE investors need exciting opportunities to drive their returns. Post deal, the quality of relationship, alignment of interest, amount and type of support provided can significantly contribute to the success, or otherwise, of an investment.

What should prospective investees look for in their PE investor? And how do Panoramic look to support the management teams it works with?

PE houses are getting bigger and more corporate, it is becoming increasingly difficult for investors to put themselves in the shoes of the nimble entrepreneurial business they wish to invest in. We believe the ability to understand where each other is coming from is an important tool in developing a positive working relationship and keeping interests aligned. As a small, entrepreneurial partner-led business ourselves we appreciate the commitment and challenge that comes with owning and growing your own business. These include people performing many roles, enabling budgets to stretch as far as possible and needing to make decisions quickly to stay ahead of the competition. Investees should look for a PE investor who understands and can support this way of working.

Genuine quality service can seem in short supply in a fast-paced modern society. In our industry we believe it should translate to being responsive, working as a partner throughout the investment lifecycle and being there when things get tough. Most investors can be affable when things are going well, but it’s when things don’t go to plan that the quality of investor and the relationship with investees is put to the test. Investees should look for an equity partner who can be there when needed and is prepared to roll their sleeves up and get stuck in.

Transaction delivery, efficiency and approach should be a high priority for management teams to understand. They should also be encouraged to consider the more nuanced aspects of the deal and future relationship. In our industry we have seen examples of goal posts being moved, diligence processes drawn out and funders who are unable to deliver the initial deal they signed up to. The result is disruption to the business along with fatigue and frustration to the management teams. Choose carefully and be aware that the process is intense and relationship long term. Our approach here is to act with integrity, operate in a straightforward and transparent manner and keep to our word, not promising something that cannot be delivered.

Negotiating terms is a unique process and no two opportunities are the same. We increasingly find that working collaboratively with management teams and being open and flexible when structuring investments drives positive results. If innovative thinking can be applied upfront it can break down barriers and quickly lead to agreed terms enabling focus towards getting the deal done, keeping disruption to a minimum.

How does Panoramic support its portfolio businesses?

As a stable, partner-led investor we develop close and long-term relationships with our portfolio businesses, providing a clear and responsive point of contact they can trust. This means decisions can be made decisively and at speed. Recent examples include assisting through tough customer contract negotiations and providing detailed guidance into an exit process. Our support tends to focus on areas where we are experts, although as a generalist investor, we draw on our experience of working with many different businesses and have contacts in many sectors. We don’t believe we know better than the management teams we back and don’t interfere with day to day operations. We make it clear from the outset that our philosophy is to back management to run the business and support them in achieving their ambitions.

Critically, we are a low volume investor, completing four or five investments per year. This gives us capacity to dedicate time to our portfolio companies and provide the personalised service that is demanded and necessary to be successful. We are extremely selective in the businesses we work with and feel that prospective investees should be equally selective when choosing an equity partner.

Why does it matter?

Private equity funding can be an exceptionally positive and powerful way to realise management ownership or growth ambitions. It is however a heavily committed, closely personal long-term relationship of joint ownership – sharing in successes and challenges alike. This makes the choice of equity partner very important and a decision which should be carefully considered when presented with various offers for funding. We feel our ethos and approach is well matched to the management teams and business we look to support.