Private Equity Could Impact your Purpose and Future Business Vision
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Private Equity Could Impact your Purpose and Future Business Vision

Private Equity Could Impact your Purpose and Future Business Vision

Private equity firms impact various industries, such as healthcare, tech, and even sports. One of the most recent deals was 400 million pounds for a cricket tournament, which roughly translates to half a billion USD. Private equity (PE) may seem appealing due to the rewarding investment opportunity and many options it gives you as a franchise owner, whether to grow or look for a way out. However, if you are considering a PE option, make sure you are aware of some unexpected outcomes impacting your purpose and future business vision if you choose PE as a strategy.

PE can be appealing to an operator seeking expansion. They could be your business partner in terms of finances, providing the monetary resources required for growth, but if you don't think things through properly, you might end up in the worst circumstance. Therefore, it's crucial to think about and comprehend the terms of engagement before committing to a PE partnership. Make sure you understand how to establish the right partnership regarding your objectives and how you get out of it.

Additionally, it would be best to decide how much control you are willing to give up in a PE partnership and how involved you want to be in your company. Any partner you bring into your company means that your strategies and decisions now involve more people than just you. A solid relationship or employment agreement is crucial with PE firms only interested in one thing: return on investment.

A route to an exit strategy can also be found in private equity. Our ability to understand the industry is frequently outpaced by new ideas, changing consumer behavior, limiting legislation, and developing technology. As time goes by, consumers are becoming increasingly more educated and impatient. For people who run a family business, there are additional challenges, such as sibling rivalries, multiple stockholders, conflicting expectations, and commitment levels.

Therefore, if you are simply jaded and want to move on, PE can help facilitate an exit strategy. However, bear in mind that, generally speaking, the ancillary advantages of ownership pale compared to the total profits of a sale. The liquidity event you may be hoping for, though, can be provided by PE if you decide the headache is no longer worth it. When considering PE as an exit from the industry, be sure to take additional factors into account as you go through the deal, such as:

  • Is the PE firm interested in maintaining an acceptable culture for your employees and the core values you have worked hard to establish over time?
  • How will key partners or management be treated in the sale, and will they be along for the ride or find themselves working for new bosses who have not shared the same principles you have held dear?

A valid succession option is the sale of the company. However, only if the buyer is a buyer who respects your people and is compatible with your culture. PE is generally ignorant of the franchise industry and its workings. They conduct business through front men who persuade the PE investors of the market's high profits. Real investors lack nothing that money can buy. Intelligent, competitive brokers or consolidators may represent them, but these "fronters" only have their interests in mind. 

Whatever your goal for the future is: Grow to sell out or grow to create a long-term family asset, partnering with a private equity firm creates many unintended consequences. Be fundamentally conscious of the impediments to fulfilling your long-term vision (succession) brought on by private equity. If you know the ground rules, they can be a great alternate source of liquidity that gives you options. Remember that creating sustainable business legacies is a marathon, not a sprint. Consider the long-term impact and resist giving what appears to be immediate liquidity.

Being a part of his own family's business, Champ has a unique insight into the difficulties, challenges and triumphs families face when combining family and business. Champ Rawls has been officially associated with The Rawls Group since 2012, although it could be said he become a part of the team in 1984, when he was born into the family business. For more information visit rawlsgroup.com 

Published: December 13th, 2022

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