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The private equity opportunity - Opening your business to the options

Sustainable, collaborative, flexible – modern private equity (PE) houses have a lot to offer businesses in travel and beyond. Stewart Lambert, Co-Founder of the Firebird Partnership, cuts through the myths to explore today’s PE options.

Let’s talk about private equity (PE). It’s a subject I’ve touched on before in this blog – looking at M&A trends for 2023. It’s also a subject that remains widely misunderstood by business owners in travel, leisure and education.

“PE houses invest in companies, looking to back good management teams in interesting sectors”

What are the phrases and ideas that are often associated with private equity? Asset strippers, ruthless, hire-and-firing management on a whim, etcetera. The truth is a long way from this. In fact, PE offers a wealth of strong options for sustainable, ambitious growth.

The British Private Equity and Venture Capital Association (BVCA) succinctly defines PE as “medium to long-term finance provided in return for an equity stake in potentially high growth unquoted companies.”

To put it another way, PE houses invest in profitable companies, looking to back good management teams in interesting sectors. That can mean many things, but will especially focus on significantly increasing a business’s value over a 3-5 year period.

“PE is not a one-size-fits-all approach”

Travel has long been a happy source of opportunities for PE, funding many transactions in the sector at various stages and scales. Think Audley Travel in 2012 onwards, Riviera in 2014, Travelopia in 2017, PGL in 2018, and plenty more besides.

The big plus points of PE include:

  • Money off the table

  • Providing alternatives to selling to trade

  • Value add through investment. Added value may also come from industry-specific knowledge, should a PE house appoint a non-executive chairman or director

  • Flexibility. PE is not a one-size-fits-all approach

“Think of PE houses as partners”

The genuine flexibility of PE is one of the points that most often surprises clients. Working with PE does not mean you have to sell all of your business, as some assume. Instead it could involve you realising part of the value of your business, selling a minority stake in the business, or selling a majority with a management team that are keen for an MBO.

Some PE houses – such as the BGF (Business Growth Fund) – specialise as minority shareholders, meaning owners and management teams remain in control.

That idea of a “partner” is an important one to think about. When looking to collaborate with PE, it’s as much about finding a person or team whose vision aligns with yours, as it is to find a PE house that wants to offer the investment you’re seeking. Since you could be working closely for many years, you want to make sure your attitudes and ambitions are aligned.

Experienced companies like Firebird can identify the PE possibilities that suit you best.

“Management will still drive the agenda”

Once you chose to partner with PE, you will find they won’t be involved in the day-to-day operations of your business. Instead they will generally act through the board, focusing on key strategic matters which could include further funding, innovation, growth and so on.

All the while, management will still drive the agenda – whether that’s towards a full or partial exit or accelerated growth. After all, even if a PE partner owns a majority stake, the main principle in travel remains true: these business are, at their core, people businesses – and it’s really difficult to sell them unless you have a supportive (and supported) management team.

It is also not inconceivable that, after 3 years or so, if the PE house itself wants to exit, the management team might choose to work towards another buyout. Audley Travel has gone through multiple PE partners, as have Great Rail Journeys and Iglu.

“Travel remains attractive to PE”

The past few years have been difficult in most sectors, but travel remains attractive to PE. There are currently many high-quality, profitable businesses that have survived Covid and emerged stronger, which could quickly be scaled to increase their profitability – an appealing PE proposition.

Meanwhile, those who note the lack of PE investment in travel in 2021/22 may want to consider that, aside from the uncertainty, many decent-sized businesses didn't choose to entertain an exit in that period as it was simply not a good time for sellers. I feel pretty certain that, if some of the higher quality businesses had been marketed for sale, there would have been a lot of PE interest.

Right now, the rumours are that we are going to see lots of transactions in the next 12 months. Whether that's PE partners selling their assets, business owners selling shares, or larger independent businesses considering their options, this may be the ideal time to consider what PE could do for you.

Stewart Lambert is co-founder of the Firebird Partnership, with nearly 25 years’ experience in corporate finance, advising owner managers on selling their businesses, raising finance and making acquisitions.

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