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Is There A Pot of Gold at The End of The Private Equity Rainbow?

They are everywhere in retail at the moment. Cashed up and aggressively chasing deals. No deals, no income. Some people see them as devils. Others see them as angels. So what are they and is there a pot of gold for you in the current private equity cycle.

The truth lies as always in the middle. Private equity firms and the people that work for them – generally speaking – are very intelligent, entrepreneurial bankers who undertand financial engineering and deal structuring better than almost any retailer can ever know them.

But first things first. This investment rush in retail is cyclical.

Capital does not have a heart and it has not fallen in love with retail. It just sees an opportunity to make good investment returns. It has also happened before and will go away and will come back again. Cyclical.

Secondly, this is all about growth stories. It is not about building robust, long term retail models, but rather strong growth stories that can be on-sold with enough upside left for the next investor group to want to buy in.

So, if you are thinking of involving a private equity partner you will need to develop a plan capable of producing a powerful and on-sellable growth story within a 3 to 5 year time horizon. If you are looking at a trade sale buyout of a business from a private equity firm you will need to look carefully at the fundamentals of the business you are about to purchase – not the growth story.

And if you are competing against a retail rival that is being fuelled by private equity you will need to think through your strategy of competing against them as they will be building momentum through better capital management, rapid coverage growth, cost reduction, supply chain efficiency and merchandise efficiency.

There can be a pot of gold for clever retailers in private equity. Provided you understand the game and take control of your own destiny.

So what is your opportunity?