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Private equity may be a lifeline

Category: Latest News Published Date Written by Tax and Legal

McInerney Holdings is attempting to stave off receivership by sourcing private equity investment with Goldman Sachs. Private equity investors are clinical in their approach and would not invest unless they were confident in a return on their investment. The move could save the group's assets from the receiver.

Private equity a lifeline?

It is important for small and medium sized enterprise owners to know that raising capital in this way is not the exclusive preserve of large publicly quoted companies. Many businesses in need of capital do not qualify for state funding and cannot secure bank finance. Private equity may be a lifeline. However, if you are a business owner in need of capital, where do you start? The following may be of use:

Before approaching investors, get your house in order. Ensure the business’ accounts are up-to-date and all necessary returns are filed. Prepare a realistic business plan based on reasonable projections. Determine how much capital is needed, what form it will take and what return you can offer investors. It may be the case that you want to enhance the offering by making it more tax efficient for investors (i.e. using pensions or the BES).

Confirm investor interest

Next, confirm investor interest in your offering. Initial feedback may allow you to adjust your offering to make it more attractive to investors. Investors can come from your own contacts, financial advisers and/or investor networks. The Halo Business Angel Network is a government sponsored body charged with aligning investors and businesses (see www.hban.org).

Once all parties are ready to proceed, your professional advisers should produce formal documents. An offering document will ensure investors are clear about what they are investing in and what return they should expect. Transaction documents will govern the relationship between the investors and the business.

Investors will normally conduct legal, financial and technical due diligence and you should be ready and willing to facilitate this. Also, it would be sound governance practice to provide investors with information on the business' performance on a regular basis during the lifetime of the investment.

Last resort?

Seeking to raise capital through private equity should not be seen as a last resort but rather an alternative to bank finance and government funding. Investors will be attracted by a sound business proposition, a good balance of risk and reward and, if available, tax breaks.

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