Raising private equity

Raising external capital from UK and overseas institutions to help finance growth or some form of buy-out or buy-in is fundamental to financing a transaction.

Whereas the main issue for a highly cash generative business may not be where to raise money, but where to invest it, businesses generally seeking finance, growth or funding to effect a change of control in either the private or public markets, will turn to the institutional private equity markets.

The private equity teams at BDO will help you weigh up your chances of securing finance and assess risk and reward from the perspectives of management, the strength of the business concept, barriers to entry and scale of opportunity. We can help you in initiating and leading a wide range of transactions, as outlined below:

Management buyouts (MBOs)

Are you part of a management team that wants to control its own destiny? An owner considering selling your business to your management? In that case, a management buyout (MBO) is an attractive option for both private and (in certain instances) public companies.

Public to privates

'Public to Private' (or P2P) deals usually involve a private equity backed management team of a quoted company making an offer to shareholders to acquire their company. The company then comes off the public markets, losing its listing.

Why go private?

For neglected small caps whose businesses are fundamentally strong, a P2P is now a genuine alternative. The benefits include:

• shareholders are provided with an exit, generally at an attractive premium to the market price
• management can focus on the long-term strategy rather than short-term cosmetic changes
• the company can access both equity and debt finance in order to build the business
• managers and staff will typically have a greater stake in the business and a greater incentive to maximise value
• the considerable costs of maintaining a public listing will be saved.

Development capital for growth and acquisitions

Private equity can energise your business by providing development capital to fuel business expansion and earnings growth.

Development capital involves introducing new funds to the business for the issue of shares. It usually makes sense to own a smaller slice of a bigger pie, especially when you remain in ultimate control of your business.

With private equity and a fast track growth strategy, you have the opportunity to realise substantially more value from the ultimate sale of your business than going it alone.

Management buy-ins (MBIs) / Buy-in management buy-outs (BIMBOs)

There may even be potential to realise some value by combining development capital with the sale of some of your equity.

The private equity industry may be able to help you strengthen the team by introducing you to candidates for key roles, or occasionally by bringing in an entirely new management team.

Management buy-ins (MBIs) involve the control of the business passing to an outside management team, typically with private equity backing. Because of the change in management, MBIs are perceived by investors to be riskier transactions than MBOs – the new managers will be unfamiliar with the business and the previous managers may not be entirely forthcoming about all the issues. The additional risk factors can reduce the price a private equity house is prepared to pay.

Buy-in management buy-outs (BIMBOs) are more common than pure MBIs. In a BIMBO, key people are added to an MBO team, perhaps to fill the role of the departing vendor or to strengthen the team. For example, an incoming chief executive and finance director could join an existing team of commercial and operations directors.