Private equity investments can help foster business growth

After many years of running a business, you might find its operations slipping into a routine, or even a rut. If your business is running on autopilot, without much strategy driving day-to-day activities, beware: the marketplace is changing and competition is increasing. For a business that’s just cruising along, that means success can stall.

Before your business comes to a halt, there’s still a chance to reenergize. One way to do that is with the right resources and strategic thinking. Selling your business to a private equity (PE) firm is a good option for your company if you’re looking to sustain long-term growth. 

Working with the right PE firm can bring better systems into your company. Smart PE investors look for ways to invest in technology and automation to make companies more efficient. The capital a PE firm invests can improve IT systems and infrastructure, position the company for future growth and streamline processes to save time and money on daily operations.

For example, when Mason Wells acquired Creative Forming Inc., a plastics manufacturing company in Ripon, it invested approximately $5 million in new plastic forming machinery for food containers. In addition, Mason Wells recruited a new vice president of operations, who implemented lean manufacturing throughout the plant.  

Bringing a business into sharper focus

PE can also help narrow the business’ focus. Over time, the scope of some businesses grows too wide and gets away from what the business does best. If a company is stretched too thin, a PE firm’s outside perspective can help refocus the business on the real value it offers and outsource functions that can be performed more efficiently by other companies.

With Creative Forming, Mason Wells refocused the business on plastic forming products. Previously, a high percentage of Creative’s revenue had come from plastic sheet sales to third-party vendors, who then make their own products with the material. Under its new strategic plan, Creative began to focus highly on formed plastic products because they generate more revenue. 

Narrowing a business’ focus doesn’t mean slowing growth. It means channeling that growth into key areas that have the highest potential. PE firms can offer industry expertise and help identify new markets and product opportunities that fit within the business’ scope.

After refocusing its business, Creative’s overall revenues began to increase 10 percent annually and forming plastic sales increased 15 percent per year. More importantly, the operating margin tripled because the company was selling higher-margin formed products manufactured on new/more efficient equipment.

Adding financial and strategic strength

PE can also bring in the capital needed to take calculated risks while exploring new markets and products that the business previously stayed away from due to financial constraints. For example, if you have yet to explore overseas opportunities due to financial restrictions or lack of knowledge, a PE firm has people who can help the business become a global player.

PE firms also provide discipline and a fresh perspective that helps boost competitiveness. Many firms get involved in strategic planning and provide access to additional resources to improve the business. In addition to capital, a PE firm may have a network of resources, such as a board of directors, who have experience in the industry and can assist the current management team in achieving strategic objectives.

Creating a mutually beneficial partnership

Some business owners might worry about bringing a PE firm in alongside the current management, but a good firm won’t swoop in and clear out the existing regime. Instead, the firm will cultivate the available talent and encourage management to take on more important roles in the company. Together with management and experienced executive partners, a PE firm can create a framework that focuses senior management on more value-added processes and cultivates a corporate culture that rewards performance. 

For business owners, deciding how to grow your company is a tough decision. If the business is running on autopilot and you find it’s losing its competitive edge, private equity might be just the spark it needs.

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