Middle market private equity is a topic on which Newport Board Group has deep expertise. Our Chair, Doug Tatum, is Immediate Past Chairman of the Board for the Association for Corporate Growth (ACG), a global not-for- profit organization representing middle market private capital investors, intermediaries and the middle market deal community. Our partners have extensive experience running companies owned by private equity and serving their sponsors as portfolio company operating partners. We know the PE scene very well.
But that is only one aspect of our familiarity with PE. We also talk to and serve a great many promising companies that are or could be targets for acquisition by PE. We asked our partners what they hear from entrepreneurs and their investors about PE-- whether or not our partners agree with these views. We got some interesting responses.
Kevin Poole is a seasoned leader with diverse experience as both a senior advisor to CXOs of middle- market firms, and as an operating executive at a Fortune 500 company.
“Most informed middle-market CEOs I meet are generally ‘wary’ of PE investors and the reputation they have created for themselves. I think there is a sense that sellers can get a higher EBITDA multiple and likely fewer post-sale ‘headaches’ with a strategic buyer.”
Art Medici has a diverse background as an executive leader in e-commerce, high tech, telecom and information companies. His experience spans startups, high growth small/mid cap firms and global leaders like Thomson Reuters.
“Mixed. Many growth companies are ill-informed as to the value of PE. Others are disinclined to give up partial ownership and prefer to grow organically, giving them better upside via a future M & A event. They fail to realize how a well-managed infusion of capital can fuel their growth exponentially, thereby overcoming dilution of the stake held by the founder and/or investors.“
Fred has been successful both as an executive and an entrepreneur. Much of his career has been spent in different sectors of the healthcare industry.
“Entrepreneurs tend to be fearful of the cost of capital and loss of control that could come from PE. They are generally naive about PE, and see a risk that they'll lose their company. They are more likely to accept a buyout than go to PE for growth capital, which they see as possibly resulting in a loss of control.“
Guy Kennett is Managing Director of Newport Board Group’s practice in South Florida. He has extensive experience developing mobility strategies and mobile apps.
“Often their first concern is low multipliers. Their second concern is a rigorous due diligence process they will have to undergo. Newport Board Group can help them to navigate through the due diligence process. We will counsel many growth companies that if they sell to a PE firm they will still have the potential of significant upside. It would come from the high growth targets that the PE can deliver through broader channels, add-on acquisitions and investment oversight experience, while allowing the original owner to share in the future upside.”
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Billie is a Newport partner in the Pacific Northwest who has been Executive VP and CIO of TrueBlue Inc. (NYSE: TBI) the largest industrial staffing firm in the U.S.
“The attitude depends on proximity and education. If a company isn't close to an exit strategy and hasn't explored those options, they typically have a negative view of PE. Others who are closer to an exit AND have emotionally accepted losing control and influence, a PE option is then more likely to be viewed pragmatically.”
Ron is a Newport partner in West Florida who has a diverse background as a CEO and senior executive in the consumer packaged goods industry, especially food, with public and private companies.
“Most seem to shy away from involvement with PE due to horror stories they have heard about it or been involved in some way in their past.”
Liz is a highly experienced international executive who has run both large and middle market companies and built world class organizations in the U.S., the Caribbean and South and Central Americas.
“The smaller middle market companies are put off by what they see as the overwhelming paperwork and reporting requirements typically demanded by PE firms from their portfolio companies.”
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Joe is a Newport partner in Dallas who, among other accomplishments, conceived the idea of a provider of IP network delivered through software-as- a-service, driving market penetration before achieving a successful sale of the company.
“PE is an option for a liquidity event, but is not seen as valuable for the growth of the business. There is deep suspicion of PE. It is generally seen as an option for desperate times.”
Mark is a co-founder of Newport and its Chief Knowledge Officer.
“Entrepreneurs are rightly cautious about the risks of taking on private equity. But savvy ones may see it as the best solution available to them for raising capital. If they can find a PE firm that credibly promises to add value by providing them industry contacts or assistance in penetrating new markets, they should consider at least exploring the PE route.”
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