Getting on the map: Awareness of PE in the business community

Usually deemed a secretive industry, private equity has spent lots of energy on political lobbying in recent years. Last year, AIFMD forced PE to engage with legislators and more recently, Southern Cross' woes are forcing the PE community to engage with the wider public.

But what about the industry's relationship with the business community? The issue of primary sourcing comes to mind, but a management team's positive experience of PE ownership is also an invaluable asset in SBO situations, as IK Investment Partners recently experienced on the Trigo buyout: the firm placed a slightly lower bid than its trade competitor but eventually secured a win as management was keen to again partner with a GP.

Thankfully, it seems that a lot of progress has been made in recent years. "I think awareness of private equity among business managers has grown over the years," says LDC investment director Jonathan Caswell. "More people are familiar with the concept - they've heard of a management buyout and they might know other people who have been involved with the industry."

EVCA secretary general Dörte Höppner concurs, and highlights the industry's public relations efforts: "There is more openness towards our industry, for various reasons. The industry has notably communicated much more in recent years, and positive studies also made the rounds - as a result, people had a chance to learn more about the industry."

This increased visibility is also the byproduct of a maturing industry that has seen its contribution to the wider economy grow over the years. "The industry has grown so much in the last 15 years," notes Jonathan Harrison, a managing director at corporate finance firm Baird. "Now that there are more GPs, having done more transactions in more sectors and with a wider remit, they have attracted more attention from business managers and owners."

That said, the issues faced by business owners following the financial crisis might have given PE a nudge as well. Says Höppner: "This increased awareness is also very much market-driven: debt is scarce and as an entrepreneur you need to look at all the options available for the development of your business."

Demystification

Not only are managers and entrepreneurs more aware of the asset class, but they also seem to have a more pragmatic approach to it, as Caswell notes: "It is potentially seen less as a sort of London financial wizardry, and more as something that is relevant to businesses across the country. When going out to meet them, I generally get a positive response: they are usually happy to talk, they don't think ‘corporate raiders' straight away and they already have a broad idea of what you do and what it entails."

The emergence of a younger generation of entrepreneurs might have played a part in this shift in attitude. "I think many in the younger generation of managers might have learned more about the asset class at university, and are therefore familiar with the fact that private equity can be a viable alternative way to finance a company. They also tend to have a more fact-based approach of the industry, with fewer pre-conceptions than before," says Höppner.

While this has largely played to PE's advantage, this demystification can sometimes be a double-edged sword as stories of deals gone wrong are now likelier to go around as well. "People are now more aware of both the good and bad sides of PE," warns Caswell. "If you went back five or six years ago, a manager might think of PE as that amazing new thing, because they know someone locally who'd done a deal with private equity that went really well, either by selling to a GP or being part of a successful MBO. These conversations are still going on, which is good, but now managers might also share stories of businesses over-leveraged by PE in 2006-2007 and unable to see the pot of gold at the end of the rainbow."

Read more on this topic in the upcoming September issue of Private Equity Europe

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