Private equity plays a great role in SME funding

Recently Private Equity Firms are famous for being smash and grab specialists, acquiring businesses adversely affected by the Pandemic. There is an emerging view, nevertheless, that this is an unjustified criticism in many cases. As Claire Madden, managing partner at Connection Capital, says “Private equity plays a “vital, constructive” role in funding SMEs”.

A report from KPMG has revealed that private equity investment, both in terms of value and number of deals, has reached levels not seen since 2017 in the first half of 2021. There are 785 deals with the value of GBP73.7 billion pounds as the successful vaccine rollout and relaxed restrictions increased optimism, whereas the depressed values of UK companies further fuelled demand for deals. This compares with equity investment of £Bn10 across 1500 companies in 2019.

Ms Madden further argues that, without private equity investment, many previously successful businesses may not survive long once pandemic support measures are withdrawn, adding that private equity firms are saving viable SMEs that are otherwise at risk of going bust or becoming zombies. Private equity firms are, she adds, providing small businesses with capital that is “structured in a way that gives them room to breathe, re-position and come back fighting.” She argues that SMEs played a central role in powering the rebound from the last recession and will do so again this time but they will require permanent equity capital “as a solid, sustainable way to fund growth”.

Source: City A.M.

The Startup Pack Comment

Whilst there has undoubtedly been an element or ‘opportunism’ in terms of acquisitions over the last year or so, Ms. Madden is right in that many companies have benefitted, and will continue to benefit, from Private investment whether in return for equity or as secured loans. Here at The Startup Pack we have seen examples where businesses have survived thanks to such investment. The truth is that private investors, whilst always being careful, are inclined to be less ‘risk-averse’ than the more traditional Lenders, which is as it should be! Given proper due-diligence they will often “Go where the Banks fear to tread”. Long may this trend continue, especially whilst the UK economy struggles to recover and grow!

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