While there is still largely a pessimistic mind-set regards the South African economy locally, there are many companies that have been reporting good results and positive profits margins – think banks and service industries. As such, there is a real case to be made that this (positivity) will be able to drive economic growth.
In the South African context – the country has a very active entrepreneurial spirit which translates into many start-ups that have grown into mature stable businesses with time. While the success of local entrepreneurial companies is dependent on everything from intellectual property to sector conditions, resources and providence, access to funding and right partnerships are also critical components of this equation. Later stage finance is arguably just as important as start-up capital in terms of realising a company’s vision.
When businesses start to focus on growth and scale up to the next level, one of the key elements becomes a source of funding. This ‘investment gap’ creates an ideal opportunity for entrepreneurial businesses to collaborate with a reputable PE partner in order to grow strategically. According to the SAVCA 2021 Private Equity Industry Survey there is a very positive trend in portfolio companies greatly increasing revenues despite the challenges posed by COVID-19. This may be due to PE backed companies’ management teams adapting more quickly and showing their entrepreneurial strength.
It’s not surprising that these opportunities are now presenting themselves across a number of different industries. Post the worst of the pandemic, a slow and steady growth pattern is what disciplined organisations will be focussing on.
Private Equity partnerships also mitigate the risk within a business. Many businesses start off as family businesses. With growth comes the requirement to split responsibilities to reduce reliance on just one or two people. Formalising the decision-making process becomes necessary in order to protect the business. Thus, governance becomes a key component as companies start to deal with larger and more diverse customers.
Private Equity offers more than just an injection of cash – any reputable PE organisation should be able to provide both finance and strategic support (usually in the form of guidance or advice along with the implementation of sound corporate governance practices and financial structuring). Good private equity partners strive to encourage the management team to keep focused on the strategy which brought the business to where it is. In a private equity team the strength lies in financial skills and knowledge to assist with capital structure, funding for growth and acquisitions. Additionally, having access to a diverse number of businesses, and the knowledge of various industries and networks could assist with growth in any partner businesses.
Businesses will be able to look for the best possible outcome when utilising private equity as a vehicle for growth. Crucially, private equity can enable any business, ensuring a solid base from which to grow.
