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G Davies - Business Funding in tough times
- 1. What do private equity investors look for?
- 6. What is private equity?
Notas del editor
- Good afternoon My name is Bryony Ellison and I work at the private equity house “WestBridge Capital”. My role at WestBridge is looking at, and evaluating investments in conjunction with liaising with our investor base of businessmen and industrialists. WestBridge is based Cardiff, with a further office in Reading. We were formally “Wales Fund Managers” – a name which you may have come across. We were rebranded in 2009 to demonstrate our UK focus, as opposed to our previously only Welsh focus. As a PE house we invest in a part in the market not covered by many, namely £1m to £5m of equity. We invest in small, profitable companies – a segment our partners have been investing in together, very successfully, for over 100 years. In fact the partners have a top quartile investment track in small companies – achieving returns, on average, of 3.4x money. Now, I’m conscious that I have the post lunch slot, so I’ll try and make it an interesting session. To kick it off – here are a few examples of some well-known private equity backed companies ...
- So, I just spoke about three ways of creating value: profit growth increase in sale multiple compared to acquisition multiple repayment of debt Depending on the size of the deal, these have different levels of importance. The biggest companies can put a lot of debt into the company, which is why debt plays such a large part in these company’s value creation. At venture size, much of the growth comes from multiple growth and profit growth, but with little ability to benefit from debt repayment. At the small company level –where WestBridge invests – value creation is created equally, a 1/3, a 1/3, a 1/3. We are able to utilise a little debt, but are also able to equally create profit growth and benefit from multiple growth.
- So, how do PE companies earn returns for their investors? Well, when a PE company acquires a stake in a business, they work with the management to develop the business and make it more valuable. Typically at WestBridge we take a hands on approach, because we invest in smaller businesses. But this depends on the experience of the management team that the we are backing. Value creation comes from both internal and external factors. The growth come from: Increasing profits making the company bigger – to enable a larger sale multiple compared to acquisition multiple Plus by repaying debt within the company
- To example this value creation – I have a worked example ...