Understanding Private Equity - Different Investment Strategies and Time Horizons
May 6, 2023
On this episode of Family Business With Purdeep Sangha, we dive into the world of private equity investment. Our guest shares insights into the regulation and protocols followed by private equity firms and how they ensure transparency and responsible management of investor money. We also take a closer look at how private equity firms acquire and structure businesses effectively, the key metrics involved in making a business a good acquisition opportunity, and the potential benefits of long-term private equity investment. In addition, we discuss the most successful ways for private equity firms to access deals and the traditional methods for introducing private equity to small and medium enterprises. Tune in to discover more about private equity investment and how it can be a valuable asset in a diversified investment portfolio.
Here are the bullet points on the topics covered in the podcast episode:
- Private equity firms typically seek deals with small to medium enterprises in industrial infrastructure services.
- The most traditional way to access deals in these areas is through brokers and smaller investment banks.
- Partnerships with owner operators have been successful for private equity firms and have resulted in warm referrals.
- Warm referrals from current business partners or owner operators who have exited businesses with the private equity firm are the most powerful way to get introductions.
- Cold calling is also a classic way to get introductions.
- Regulatory requirements for private equity firms are less strict than those for public companies.
- Private equity firms are required to provide audited financials on an annual basis.
- Private equity firms must have measures in place to prove responsible management of investor wealth.
- The trend in the industry is towards increased transparency and accountability towards investors.
- Private equity is often associated with explosive tech growth companies, but this is actually venture capital.
- The focus of this private equity firm is on stable, recurring revenue-focused businesses.
- Key metrics for potential investments include strong recurring revenue and recession resiliency.
- All businesses in the firm's portfolio have strong ties to government bylaws or codes, providing a stable base for operations.
- Canadian jobs data for today was relatively strong, which is interesting during an economic downturn.
- Finding good people for businesses is difficult at the moment.
- The speed at which inflation came was unprecedented in comparison to historical comparables.
- The speaker anticipates some pullbacks in public markets throughout 2023.
- Strong recurring revenue portion of businesses tied to government codes is important for cash flow and passing on to investors.
- Investors should properly allocate their portfolio and not be tempted to leave things as is.
- Private equity investment may be difficult psychologically, but long-term holding can result in similar or better returns as principal residence investment.
- Private equity is different from typical retail bank investments in equity and fixed income.
- Private equity deals with businesses not available on public exchanges, such as industrial businesses or tech companies.
- Buying and selling private equity assets takes a longer time, so the investment is less liquid.
- Private equity investments typically have a 5-year plus time horizon and require a portfolio of investable assets above a million dollars.
- New Look focuses on two sectors: industrial infrastructure services and dental space in Canada, so investors looking for more diverse options may need to look elsewhere.
- The million-plus range is the sweet spot for New Look, but other factors, such as goals and need for money, can influence investment decisions.
- Private equity has become more popular in the last decade.
- Private equity involves investing in private enterprises.
- There is often a lack of security with private equity investments compared to investing in the public markets.
- The podcast editor wants to know about the regulations and protocols followed by private equity firms to ensure transparency and responsible management of money.
- Private equity, acquiring businesses and structuring them effectively are discussed.
- Knowing what buyers are looking for is important for effective business structure and potential sales.
- Many business owners don't plan for a potential sale until it's too late and may sell for a lower value than they could have.
- The podcast editor wants to discuss what a buyer looks for when acquiring businesses in a future episode.
- Majority position is always taken by the platform company
- Private equity strategy focuses on fragmented industries and consolidation under a larger brand
- Platform or larger company is found to partner with for acquisitions
- 60%-70% ownership structure is maintained, with current owner operator retaining 30%-40%
- Additional acquisition opportunities are pursued and integrated into the platform company
- On the dental side, 100% of clinics are acquired and owning operating dentist is retained for 8-24 months to transition clientele to next associate.
- Businesses often focus on day-to-day operations and growth until they reach a point where they want to sell their business within 3-5 years.
- To be a good acquisition opportunity for a strategic or private equity firm, the business needs to be in its best position, which involves a mixture of art and science.
- Key metrics and logical accounting practices can contribute to making the business a good acquisition opportunity.
- To make sure the business is in a good position, steps can be taken to ensure that accounting practices are easily followed and due diligence is not difficult.
- Private equity firms are often perceived as cutting costs at the expense of patients, clients, and employees, but this is not always the case.
- The speaker has been in finance for 7-8 years, starting in estate planning before moving to investment advice.
- They joined New Look Capital to expand their knowledge of alternative investments and provide better investment advice to Canadians.
- New Look Capital aims to provide institutional quality investment experience to Canadian investors, making opportunities such as private equity and credit attainable for everyday Canadians.
- Private equity firms typically seek deals with small to medium enterprises in industrial infrastructure services.
- The most traditional way to access deals in these areas is through brokers and smaller investment banks.
- Partnerships with owner operators have been successful for private equity firms and have resulted in warm referrals.
- Warm referrals from current business partners or owner operators who have exited businesses with the private equity firm are the most powerful way to get introductions.
- Cold calling is also a classic way to get introductions.
- Regulatory requirements for private equity firms are less strict than those for public companies.
- Private equity firms are required to provide audited financials on an annual basis.
- Private equity firms must have measures in place to prove responsible management of investor wealth.
- The trend in the industry is towards increased transparency and accountability towards investors.
- Private equity is often associated with explosive tech growth companies, but this is actually venture capital.
- The focus of this private equity firm is on stable, recurring revenue-focused businesses.
- Key metrics for potential investments include strong recurring revenue and recession resiliency.
- All businesses in the firm's portfolio have strong ties to government bylaws or codes, providing a stable base for operations.
- Canadian jobs data for today was relatively strong, which is interesting during an economic downturn.
- Finding good people for businesses is difficult at the moment.
- The speed at which inflation came was unprecedented in comparison to historical comparables.
- The speaker anticipates some pullbacks in public markets throughout 2023.
- Strong recurring revenue portion of businesses tied to government codes is important for cash flow and passing on to investors.
- Investors should properly allocate their portfolio and not be tempted to leave things as is.
- Private equity investment may be difficult psychologically, but long-term holding can result in similar or better returns as principal residence investment.
- Private equity is different from typical retail bank investments in equity and fixed income.
- Private equity deals with businesses not available on public exchanges, such as industrial businesses or tech companies.
- Buying and selling private equity assets takes a longer time, so the investment is less liquid.
- Private equity investments typically have a 5-year plus time horizon and require a portfolio of investable assets above a million dollars.
- New Look focuses on two sectors: industrial infrastructure services and dental space in Canada, so investors looking for more diverse options may need to look elsewhere.
- The million-plus range is the sweet spot for New Look, but other factors, such as goals and need for money, can influence investment decisions.
- Private equity has become more popular in the last decade.
- Private equity involves investing in private enterprises.
- There is often a lack of security with private equity investments compared to investing in the public markets.
- The podcast editor wants to know about the regulations and protocols followed by private equity firms to ensure transparency and responsible management of money.
- Private equity, acquiring businesses and structuring them effectively are discussed.
- Knowing what buyers are looking for is important for effective business structure and potential sales.
- Many business owners don't plan for a potential sale until it's too late and may sell for a lower value than they could have.
- The podcast editor wants to discuss what a buyer looks for when acquiring businesses in a future episode.
- Majority position is always taken by the platform company
- Private equity strategy focuses on fragmented industries and consolidation under a larger brand
- Platform or larger company is found to partner with for acquisitions
- 60%-70% ownership structure is maintained, with current owner operator retaining 30%-40%
- Additional acquisition opportunities are pursued and integrated into the platform company
- On the dental side, 100% of clinics are acquired and owning operating dentist is retained for 8-24 months to transition clientele to next associate.
- Businesses often focus on day-to-day operations and growth until they reach a point where they want to sell their business within 3-5 years.
- To be a good acquisition opportunity for a strategic or private equity firm, the business needs to be in its best position, which involves a mixture of art and science.
- Key metrics and logical accounting practices can contribute to making the business a good acquisition opportunity.
- To make sure the business is in a good position, steps can be taken to ensure that accounting practices are easily followed and due diligence is not difficult.
- Private equity firms are often perceived as cutting costs at the expense of patients, clients, and employees, but this is not always the case.
- The speaker has been in finance for 7-8 years, starting in estate planning before moving to investment advice.
- They joined New Look Capital to expand their knowledge of alternative investments and provide better investment advice to Canadians.
- New Look Capital aims to provide institutional quality investment experience to Canadian investors, making opportunities such as private equity and credit attainable for everyday Canadians.