Private equity (PE) often faces myths that may discourage business owners from considering a sale or partnership. Here, we debunk 10 common misconceptions about PE and highlight the real benefits.
1. PE Firms Only Cut Costs
Reality: While efficiency is a priority, most PE firms focus on creating value and driving growth rather than simply reducing expenses. PE firms often provide capital to help companies expand, invest in technology, improve operations, and capture new markets. Cost optimization is just one part of a larger strategy aimed at maximizing value and long-term success.
2. Selling to PE Means Losing All Control of the Business
Reality: Many PE transactions involve keeping current management in place and valuing the owner’s role. PE firms often seek a collaborative partnership where founders and management play a critical role in driving the company’s vision and growth. In some cases, owners maintain a partial equity stake, allowing them to stay invested in the company’s success and retain influence over its future.
3. PE Is Only for Struggling Companies
Reality: While PE firms may sometimes invest in struggling companies, most PE firms seek out stable, high-potential businesses that are well-established in their industries. The majority of PE investments are in companies with solid operations that have room for growth. These firms look for opportunities to add value and accelerate success, not just to “rescue” businesses.
4. PE Firms Don’t Care About Company Culture
Reality: Most PE firms understand the importance of preserving a company’s unique culture, especially when it is a key part of its success. PE firms recognize that company culture is often tied to customer loyalty, brand reputation, and employee engagement. While some operational changes may occur, PE firms typically seek to maintain the culture that has contributed to the company’s success.
5. PE Is Only Focused on Short-Term Gains
Reality: While PE firms aim to create value, many take a long-term approach to growth. The typical PE investment horizon is around 5-7 years, allowing time for real improvements and sustainable growth. PE firms invest in businesses to increase their value over time, which usually requires a strategic, multi-year plan, not just a quick turnaround.
6. PE Firms Only Invest in Big Companies
Reality: While some PE firms focus on large-scale investments, many specialize in mid-market companies and even smaller businesses. In fact, mid-sized businesses often represent the bulk of PE activity. These firms recognize the growth potential of smaller companies and frequently seek to support them with capital, resources, and expertise to help them scale and succeed.
7. Private Equity Means the Founder Must Leave the Business
Reality: In many cases, PE firms encourage founders and leaders to stay involved, as they bring valuable experience and vision. PE firms often work closely with the founding team to ensure continuity and use the founder’s insights to shape the future strategy. Some owners even retain a minority stake, allowing them to benefit from future growth while staying engaged with the business.
8. PE Investments Will Overburden the Company with Debt
Reality: While debt is often used to finance acquisitions, PE firms are careful to structure debt in a way that the company can manage. Many PE firms have sophisticated financial management practices that help companies use debt strategically for growth and expansion without overburdening the business. They also aim to increase cash flow and profitability, which supports healthy debt management.
9. PE Firms Are Only Interested in Exiting Quickly
Reality: Exiting is indeed a goal for most PE firms, but they typically do so only after achieving growth targets and adding value to the company. PE firms have a vested interest in ensuring that the company is well-prepared for the next phase of growth, whether that’s selling to another buyer, going public, or achieving independent success. The exit strategy is part of a well-planned process to ensure the company is left in a strong position.
The Reality of Private Equity: A Partner in Long-Term Growth
These misconceptions often stem from misunderstandings of how private equity operates. In reality, PE firms are invested in creating long-term value, strengthening companies, and building sustainable growth. They bring capital, expertise, and resources that help businesses thrive and achieve their full potential.
For business owners, selling to PE can open doors to growth, stability, and financial rewards without sacrificing culture or vision. By understanding the realities of private equity, owners can make informed decisions and explore opportunities that align with their goals.
