Against a promising backdrop of increased consumer spending, UK economic growth and consumer credit card debt levels rising to 2007 levels, a group of consumer sector CEOs, Chairmen and private equity investors convened at The Savoy for one of Marble Hill Partner’s celebrated industry breakfasts. Over eggs benedict and muffins, the mood was upbeat and optimistic, albeit with a dose of cautiousness served on the side.
The challenge for the private equity firms was apparent – with the number of private equity transactions in 2013 down 50% in comparison with 2012, sourcing new deals was proving tough. With fewer investment opportunities to pursue, differentiating themselves against their competitors was their main predicament. I was keen to extract as many insights as possible that morning, and happily, the CEOs who had been through the full investment cycle and achieved exits, both good and bad, were eager to offer up their words of wisdom.
1. Personnel connection with your investors is paramount. You are going to spend a lot of time with these people. Do you really like one another? Could you sit next to each other on a transatlantic flight and genuinely enjoy one another’s company?
2. Who will be on your board? Will it be the senior partner who is courting you through the transaction or will you be left holding hands with the fresh-faced, just-out-of-school investment manager?
3. Does your investor really understand the business, sector and market conditions? What’s their track record? Make sure you are confident that there are no nasty surprises lurking behind the boardroom table.
4. How big are their tanks and will they be prepared to use them if the going gets tough? If performance drops you need to know that these guys will support you and the team, as inevitably there will be bumps in the road. Sometimes these bumps turn into bigger obstacles and relationships with the banks becomes challenging. At this juncture, will the private equity firm stand their ground and continue to support your team and the company?
5. Take references. Management are forensically assessed and referenced by private equity investors as part of the due diligence process. Make sure you do your own referencing and due diligence on the private equity firm from existing and exited portfolio companies.
We finished up over coffee and the general mood remained upbeat. Although both sides of the table faced their individual challenges, they were adapting with the times and were shaping up all the better for it.
Sam Smith, Managing Director
News & Insight