New Zealand’s corporate sector is overwhelmingly dominated by small to medium sized enterprises (SMEs). Typically many of these companies are in family ownership and have high potential growth rates but are often constrained by capital and management capability from making the necessary transition towards a conventional corporate model and to achieving significantly higher rates of growth through, for example, scaling the business globally. Many also have succession issues. While these companies have the potential choice for achieving liquidity via a public listing or trade sale, their characteristics mean they are often better suited to partnering with a private equity investor.
Private equity often provides the catalyst and capabilities required for the businesses to consolidate an industry, become a significant exporter or achieve global scalability. Many of these mid-market companies also have succession issues. Recent surveys indicate that around 70% of SME owners intended to sell their business in the next five years. In order to achieve this successfully business owners need to think carefully about their succession plan. Private equity can provide an important role in that succession transition.
Succession planning delivers the following benefits:
- Allows owner-operators to access the value that has accrued in their business;
- Assists in identifying or introducing new management and ensuring any transition is managed with minimal disruption to the business;
- Is an opportunity for an owner-operator to introduce a new financial partner into the business to relieve capital constraints facing the business in its growth plan;
- Allows owners to free up some of their time or take a less hands on role in the business while still contributing to its growth.
We are patient investors and recognise that at any particular point in time it may not be opportune or appropriate for us to become investors in a particular company. We also recognise that circumstances can change over time and so we see the benefit in introducing ourselves to companies we take an interest in to help them to be aware of the option of private equity as a choice at some stage in the future.
In some instances, we are able to help identify and source new management for a business. Pencarrow works closely with its portfolio management teams and has strong relationships with a pool of senior managers in New Zealand. On a number of occasions we have backed management teams that we have previously worked with into new investments.
If you would like to talk confidentially about succession planning and whether your business is a candidate for private equity feel free to contact us.