A Study Shows Companies Still Have Misconceptions Over Private Equity


September 24, 2015


A new study has found companies don’t consider private equity buyouts as the preferred option for exiting the business. For analysts and private equity firm experts, the latest findings show how small and mid-sized companies are still unaware of the opportunities the industry can offer. Misconceptions over private equity continue muddying the waters.


The Survey’s Findings


The investment bank Harris Williams & Co together with the business media group Inc. conducted the survey. They interviewed nearly 700 owners and executives of privately held companies, with the companies ranging from small to mid-market in size. The respondents were a mix of companies in different industries and locations in the US.


Interestingly, nearly half of the respondents were planning to sell the business in the course of the next three years, although only a quarter of them had an exit strategy in place. Lack of exit strategies still seems to be a big problem in the business world.


Furthermore, Harris Williams & Co and Inc. also asked about the preferred exit strategies. The preferred option was to sell to another public or private company. The respondents gave this option an average rating of 1.78, with 1 being the most preferred option.


Sale to a public or private company was followed by a sale to a company employee, with a 2.36 mark. Private equity was left third with a 2.46 rating, beating only the option of handing out the firm to a family member. This option only received a 2.94 rating, proving that a family business is slowly losing its place in the business world.


A Surprising Result


The survey’s findings are a bit of a contradiction, according to Harris Williams & Co’s managing director and co-founder, Hiter Harris. Mr Harris said the firm’s advising has been split half by strategic and private-equity buyers in recent years. Furthermore, the Private Equity Growth Capital Council’s data shows there are nearly 13,000 portfolio companies currently backed by private equity in the US.


For Harris, the result is an indication of the lack of awareness many small and mid-market companies have in regards of private equity. “If you run small company and you, as the chief executive, have never had a chance to interact with private equity, you might think that the corporate route is better,” he told the Wall Street Journal.


Furthermore, Dan Tinker, president and CEO of SRS Distribution, also told the newspaper, “A lot of people have misconceptions as to what it is like to work with private equity”. Mr Tinker’s company is backed by Berkshire Partners and he knows the different approaches PE firms might have. “I’ve worked for multiple private-equity firms, and they are all quite different in how much support and independence they give to companies,” Tinker said in the interview.


Private Equity Provides Benefits for Many Companies


The survey highlights the need for companies to understand the benefits of different options. On the benefits of private equity, Mr Harris said in the report, “Private equity groups tend to allow sellers to retain more independence in running the organization and incent high-performing management teams to stay with the firm by offering them equity grants that can lead to substantial future wealth”.


The survey highlights the need for private equity firms to continue raising awareness over the opportunities it can offer to companies. It also gives great insight into what respondents value the most when selling their companies – something private equity firms should keep in mind.

Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedIn