Capital markets often treat smaller companies like Randy Newman’s song “Short People” suggests: “They got no reason to live.” Access to capital is often the difference between success and failure in business, and that access can be particularly challenging, even for smaller companies.
Bank loans are not always possible or favorable, and they can come with onerous requirements. Short of a bake sale, many leaders are left wondering how to find the funds needed to drive innovation, build market share and overtake competitors. Increasingly, leaders of these businesses turn to private equity.
For years, PE was misunderstood as a realm of multibillion-dollar deals. That’s true of the banner headlines, but most PE transactions involve smaller companies. PE can work for both owners who wish to cash out of the business they’ve built, and those who seek a partner with whom they can expand their business.
Why choose PE?
PE delivers results. A good PEfirm provides a lot more than money, creating opportunities that would otherwise be unavailable. A PE firm makes companies bigger and better while providing opportunities for wealth creation for everyone involved. A great PE partner will offer the following:
- Focus on growth.
- Move smartly through the due diligence and acquisition process in ways that minimize disruption and uncertainty while providing liquidity quickly.
- Pay a full and fair price.
- Be flexible.
How PE works
PE firms generally invest majority stakes in companies, but minority deals are not uncommon.
Some PE firms focus on turnarounds, but most invest in successful companies, then help them move to the next level.
What does PE deliver?
Financial support is the clearest benefit, but global, experienced firms deliver major resources and talent that smaller firms cannot otherwise access.
Boots on the ground and deep expertise are powerful tools for supercharging growth.
Aligning interests for the best outcomes
Great PE investments always involve properly motivating every stakeholder for the success of the deal. That’s why Riverside is delighted when the original owner retains a stake in the company, allowing the owner to receive what we call the “second bite of the apple” when our stake in the investment is ultimately sold.
Anatomy of a great deal
When the owner of Wildlife International approached us with an offer to sell in 2010, we were excited about the possibilities for this wonderful environmental testing company. Wildlife was an outstanding company, but the leaders were great scientists and by their own admission not great businessmen.
Riverside identified growth and efficiency opportunities, and then worked with management to fully realize Wildlife’s potential. In two years, we expanded and professionalized sales processes, improved management, and paid for and guided the creation of new lab space and expanded product lines.
The result was a doubling of the backlog, sales funnel and earnings during our hold. When we sold the bigger and better company to an industry buyer at a logically much higher price it was a huge win for our investors, but also a tremendous result for the company and its sellers.
When interests align, beautiful things happen.
Stewart Kohl is the co-CEO of The Riverside Co., a global private equity firm based in Cleveland. In addition, Kohl is active in many civic organizations. He is an Oberlin College trustee; co-chair of the board of trustees of the Museum of Contemporary Art Cleveland; a trustee of the Cleveland Clinic, as well as a member of its Wellness Institute Leadership Board and co-chair of the Cleveland Clinic Capital Campaign. For more information, visit www.riversidecompany.com.
