A Two-Day Event on Private Equity

Many privately-held operating companies looking to grow find themselves facing constant and formidable challenges dealing with such issues as regulatory compliance, risk management, development of existing talent, expansion, cost-reduction, technology, and succession. Owners of these companies, due to inexperience and/or limited resources, often struggle to fully understand and properly address these pressures as they strive to become bigger and better.

On June 13th and 14th, Louisville will host the 2013 Association for Corporate Growth Mid-South Capital Connection at which national, regional and local private equity professionals will showcase their growth resources providing business owners the opportunity to explore how a partnership with a private equity investor may be the solution to improving performance, increasing competitiveness and ultimately building value in their companies.

The focus of the 2013 Association for Corporate Growth Mid-South Capital Connection is on private equity. In simple terms, private equity provides short to mid-term financing and operational resources to a company in exchange for an ownership interest in the company. Private equity allows business owners the opportunity to monetize the value of their companies through the sale of their entire company, the sale of a portion of their company or the buyout other equity holders. Often, private equity investors will team up with an existing management team to buy a company from its owners.

Not all companies are candidates for private equity. In general, companies that are more attractive to private equity investors are those that; (i) operate in a stable, but growing, market, (ii) generate positive cash flow, (iii) maintain competitive advantages in their industries, (iv) benefit from barriers to entry to their marketplaces, (v) possess proprietary products or services, (vi) record historic positive revenue and project future profit growth, and (vii) provide cost cutting opportunities.

First and foremost, a company seeking private equity must have an established operating history of generating both revenues and profits and must have some foundation upon which to grow. While there is really no real rule of thumb, undervalued companies or companies with untapped value that generate anywhere from $5 million to $100 million in annual revenues, $3 million to $30 million in EBITDA (earnings before interest, taxes, depreciation and amortization) and predictable cash flow, will usually catch the initial attention of private equity investors. After that, the investment criteria becomes more specific depending on the particular investor.

In order to move on in this process, suitable candidates for private equity must be able to exhibit :

• A business model that is based on strong fundamentals, is easy to understand, and is scalable. Private equity investors look for businesses with a well-defined industry focus that they understand and in which proper execution can quickly position the company to be more competitive within a growing market.
• A competitive advantage in its respective industry or the ability to create a competitive advantage with the resources of private equity. A competitive advantage exists where a company has created conditions which allow it to operate in a more efficient or higher quality manner compared to its competitors. Developing a quality product or service under a cost structure that rivals its competitors gives a company a distinct edge in business.
• The existence of one or more barriers to entry into the market place which causes competitors to think twice about entering the market. Excessive capital requirements, marketing expenses, advantages in cost structure, economies of scale, intellectual property and customer loyalty, individually and/or collectively, can create barriers which will make a competitor think twice about entering the market.
• Intellectual property that can provide a foundation for differentiating the company’s products from those of its competitors and protection of the company’s products, formulations, systems and processes, in the form of patents, trademarks and/or service mark which impede competitors who require such technology in order to be compete.
• A highly motivated, enthusiastic and entrepreneurial management team that is committed to and capable of working with the private equity investor in changing the direction of the company, if necessary, and taking it to the next level. Since private equity investors do not view themselves as operational managers, they will rely heavily on the existing management team dedicated to implementing the changes associated with a rapidly growing business.

There is no better forum for privately-held companies in our region to learn about private equity than this year’s Mid-South Association for Corporate Growth Capital Connection in Louisville, Kentucky, on June 13th and 14th. Two days of networking with private equity professionals will go a long way in providing business owners with answers on whether a private equity partnership would be advantageous in building growth and creating value in their company.

If you are interested in learning more about the Mid-South Association for Corporate Growth Capital Connection event simply click here (www.acg.org/kentucky) or if you would like to know more about how private equity might be of help to your business as it grows, please contact Jim Seiffert at (502) 681-0519 or [email protected].