Why do managers choose PE?
Given that these misconceptions abound, it’s reasonable to ask why so many management teams and investors choose to work with Private Equity houses. The BVCA estimates that each year around 1,300 businesses in the UK receive Private Equity funding.
For many managers, the PE route provides two important benefits. If they are ambitious, they are far more likely to have the opportunity to grow their businesses more quickly and to experiment more rapidly with important operational changes.
They will also enjoy a level of independence that they just wouldn’t experience if running the business as a division of a much larger group.
In addition, they will enjoy the support around the board table of a group of investors who will encourage them to decide and act swiftly. This small community of investors creates the right environment for dynamic management teams who want to get on with the job, without the bureaucratic delays that can sometimes frustrate the management of public companies.
Managers also have the chance to earn greater rewards. PE deals tend to involve exciting incentives to encourage managers to meet their growth targets. Executive pay levels and rewards in public companies are increasing, but so is shareholder resistance to this trend. Managers working with PE houses have clearer incentives to aim for and are far less likely to receive flak for achieving them.
Rewards and job security tend to follow success, meaning that the benefits are spread much more widely than just among investors and management teams.