Entrepreneurs sour towards private equity model

Despite constant rhetoric regarding private equity investors' operational value add to investee businesses, it seems some entrepreneurs are far less enthusiastic over the industry's self-declared partnership model.

"Private equity has to decide where they fit on the spectrum of financial investors and operators. The best private equity firms are those that are simply financiers who won't tell you how to run your business," said Paul Wilkinson, currently chairman of Produce World and the Big Bear Group, and formerly a director of Aryzta AG.

Wilkinson went on to say that the private equity model has proved difficult for UK businesses, as the investors had "overhyped" expectations in terms of returns.

His view towards the industry runs contrary to common critiques of the asset class in the last 18 months, which claimed investors have not added enough value in terms of operational improvement, instead choosing to focuse on financial engineering.

Wilkinson was talking at a panel discussion organised by Investec Private Bank, where some of his fellow entrepreneurs aired less downbeat views on the industry. Indeed, there were suggestions from some quarters that in the mid-market the private equity model would re-emerge as less frothy than previously.

The consensus seemed to be that there is opportunity for private equity to change its model and expand back-end services to take the financial burden off companies. Further, private equity firms should focus on networking between their own portfolio companies, according to Bill Liao, co-founder of social network service XING.

"There are still tough times ahead for private equity-backed businesses in terms of their risk profile," said Peter Selkirk, CEO of ECI Partners-backed Egbert H Taylor.

The panel discussion focused on research that comprised the answers of 71 independent or corporate entrepreneurs of medium-sized businesses in the UK.

The results showed that 35% of entrepeneurs are considering invoice discounting, while 17% of respondents will look to mezzanine as a source of financing. Further, of those entreprenuers who have secured lending from UK banks over the last 12 months, only 36% felt that terms and conditions, including interest rates, were fair.

The good news, however, is that 88% expect revenues from their UK businesses to increase this year, a welcome change for the country's economy.

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• Topics
• GPs
• UK / Ireland
• Expansion
• Early-stage
• Buyouts