That’s the message from a trio of senior private-equity investors who were quizzed on their views towards the industry by Peter Hansen, founder of Sapient Corporate Finance.
Ron Pearson of Bowmark, whose investments include Living Ventures and The Restaurant Group, lists three things that are necessary for investments: great management, a product that will appeal to customers, and something that’s scalable.
Hugo Robinson, of Kings Park Capital, a leisure-sector specialist whose investments have included Las Iguanas, agreed. “We are looking to grow businesses, and businesses that can demonstrate that ability to grow.”
Bill Priestley, of LGV, said the decision is made “simpler” if the company has demonstrated “steady progression” already. “If we invest our own money in the deals, it has got to stack up.
“It comes down to things like price. If it’s cheap and you haven’t got a good track record, you might still buy it, but if it’s expensive then you need to have all these things stacked up. There’s not one single answer. Really, all we’re looking to do is get a return on our capital.”
Despite the wet-led sector being in long-term structural decline, Priestley said investing in such firms isn’t necessarily a problem — Amber Taverns, the wet-led pub group, is among LGV’s investments.
And size isn’t necessarily a problem, either. When asked if companies the size of some MA250 members are too small, Robinson pointed out that he invested in takeaway chain Abokado when it had just five sites.
As for what private equity doesn’t like, poor-performing units are a “red flag” for Pearson that “things aren’t right”.
Priestley added: “I don’t want a chief executive who can’t tell me the numbers sold last night.
“Similarly I don’t want a finance director who doesn’t know the name of the managers in a unit. Particularly in smaller businesses, you want everybody to know the business and be passionate about the business.”
Backing for business
On the question of private equity’s level of involvement in the business, Robinson said: “From a day-to-day perspective, the level of involvement very much depends on their view of the business, but the primary thing is we are not in the business of running businesses; we are in the business of backing people to run businesses.
“We may be able to offer some guidance, discipline and focus but we are not trying to manage the business.”
Priestley said that while it’s not true that private equity will tell people how to run their businesses, “there’s no point pretending that going to private equity you wouldn’t be giving something up because you are. That’s just a reality”.
He added: “The important thing is, be upfront, work out where your agenda and your partner’s agenda differs.”
When it comes to return on investment, Pearson said three times is generally the target, with Priestley saying: “If we make two times-plus after costs then it works for us.”
When asked by TLC Inns’ co-founder Steve Haslam about whether they’d recommend talking to just one private-equity investor or several, the overall view is the more the better.
Hansen said: “You want to talk to people because it’s about personality and your relationship. As an advisor I would say you get the deal you want that way.”