Five myths about partnership deals with private equity

Myth 1: Private equity firms take over the business and implement significant staff cuts

A common myth is that private equity firms buy companies to immediately cut costs by laying off large portions of the staff. In reality, the goal of private equity firms is usually to increase the company’s value through growth rather than to boost short-term profits through cuts. Often, a key part of the investment strategy is to retain and develop key talent to drive growth and success.

Myth 2: Private equity firms are only after short-term profits

There is a perception that private equity firms are only interested in making quick profits and then selling the company. In fact, many private equity firms have a longer investment horizon and work to create sustainable value over time. They invest significantly in improving operational efficiency, growth, and innovation capabilities, which can take several years to achieve.

Myth 3: Private equity firms always take full control of the companies they invest in

Another myth is that private equity firms always demand full control and management over the companies they invest in. In reality, private equity investments can vary greatly, with a common ownership stake being 40-80%. They can provide capital and expertise without necessarily taking over daily operations or decision-making. In such cases, the entrepreneur retains a significant strategic role, tailored to their desired level of involvement.

Myth 4: Private equity firms always want to maximise the debt in companies

Many believe that private equity firms always use large amounts of debt financing to acquire companies, leading to high debt levels and financial instability for the company. While many private equity deals can involve debt financing, it is not a universal strategy. Most investments are made with a long-term sustainable capital structure to ensure the company can grow and develop sustainably without carrying unmanageable debt.

Myth 5: Private equity firms do not care about the company’s culture or values

Another common myth is that private equity firms do not care about the existing company culture or values within the companies they invest in. In reality, many private equity firms understand that a strong and positive company culture is crucial for long-term success. They often strive to preserve and enhance a healthy culture and values while making necessary improvements to increase the company’s value.

In summary, many of the common misconceptions about private equity firms are incorrect. These firms generally aim to create long-term value through growth and development while preserving the company’s culture and values. They also tailor their strategies to the specific needs and goals of each investment.