Private Equity Questions with Mobeus Private Equity Partners LLP

Questions with Peter Watson from Prism

Is Acquisition Funding available?
“Absolutely yes. Acquisitions have formed a significant proportion of the deals we have funded over the last few years, ranging from small opportunistic acquisitions to significant reverse acquisitions for AIM listed companies”

Is Private Equity available to SMEs?
Yes, definitely. Many SME owners don’t realise that smaller businesses can access private equity investment – and that it doesn’t have to involve selling out of your business or handing over control to a third party. Equity investment into SMEs is mainly provided by Venture Capital Trust (“VCT”) investors, like Mobeus.

What does Private Equity mean for SMEs?
Private equity funding is usually provided for one of the following, to:

  • Provide growth capital
  • Fund acquisitions
  • Recapitalise balance sheets
  • Support a change of ownership – e.g. a management buyout (“MBO”)

MBO transactions allow SME shareholders to realise part or all of the existing value in their business (taking advantage of Entrepreneurs Relief), plus provide management teams a chance to acquire a significant stake in the companies they run day-to-day.

Transactions can be structured to help existing shareholders achieve the best of both worlds by selling part of their equity to a private equity firm and their management team in return for cash; but also enabling them to retain a stake, effectively becoming a private investor in their own business to benefit from further upside.

So it doesn’t involve someone else taking control of a business?
Not in the SME market, no. This is a common misconception. Investors in SMEs are well aware that the most important thing in a small company is its management team. Mobeus is typically a minority investor in the businesses that we back – meaning that the management team holds a majority equity stake between them. Yes, we put one of own team on the board – but our view is that companies should be run by their boards, not their investors. We look to back strong teams with a good plan – we do not look for assets to purchase.

What type of businesses do you look for?
Different private equity firms focus on different types and sizes of businesses. Mobeus is a SME focused generalist investor. This means we focus on businesses that make between £0.5m and £2.0m profits pa in almost any sector. In the past we have backed companies that do everything from making cakes or flying helicopters to developing software or selling photocopiers. The thing that all our investee companies have in common is a good management team and a strong position in their market niche.

Are you investing now?
Absolutely! We, like many other private equity firms, have high levels of free cash in our funds and we are actively investing into new opportunities. In fact, we will invest more in 2011 than we ever have before in one single year!

What do you look for in a business?
We look for profitable, established businesses with a committed management team and a sensible plan. The business plan doesn’t necessarily need to deliver stellar growth either – if a company’s plan is to grow modestly we can structure our investment accordingly, so that it works for all parties.

We prefer companies that hold a solid position in their chosen niche, as this typically makes businesses more robust. It always helps if there is a straightforward reason for a transaction too – e.g. retirement, an acquisition or refinancing – raising money to spend on marketing is never a good answer!

What’s the best way to explore Private Equity investment as an option?
In reality any SME considering raising private equity investment needs to seek independent professional advice. Corporate finance firms like Prism should be able to point you in the right direction.

Any other tips?
You would be amazed at how many companies don’t have a business or succession plan! If you own your own company how would you sell it if you were still a key part of day-to-day operations? It can take anything from several months to a couple of years to put in place good systems, a well balanced management team and a sensible business plan – especially if existing shareholders are hoping to extricate themselves from the day-to-day management of their business at the same time. If your company already has this under control – well done – if not then start to think ahead and make plans. It would be wise to speak with a company like Prism who can evaluate the factors that both add and subtract from value and to assist you in developing plans to realise your objectives.

Mobeus is represented by Mobeus Private Equity Partners LLP – authorised and regulated by the Financial Services Authority