James MacLeay, investment manager at private equity house WestBridge, recently predicted a surge in deal activity over the next few months, as business owners seek to realise and de-risk their assets ahead of widely anticipated changes to the tax regime in the next budget. Duncan Macintosh, a founder of Capital and corporate lawyer with over 30 years in private equity and venture capital, joins the conversation.
James MacLeay is right; the benefit of doing an exit deal soon is likely to be substantial for many business owners. But there will be those with longer horizons, and no immediate wish to exit, who should also be thinking about private equity.
Loads of businesses (if not all) have tapped the Government’s COVID-19 debt credit lines – £80 billion, it is said at 5 times the average borrowing rate. But this debt remains, as a debt. So, what to do to repair your balance sheet? The answer is the timeless one – rebuild your equity.
Public companies can tap the public equity markets. And private companies need to tap the private equity market.
Also, as the economic cloud of COVID lifts, as it assuredly will, businesses will need to invest – not only to repay the COVID debt. Their borrowing capacity will be tapped out. Private equity is an answer.
As Warren Buffett (I am sure) once (probably) said, the best time to invest is in the depths of a recession.
Contrarian investing has a long track record. So, here are two real quotes from the Sage of Omaha.
Now could be the right time for business owners to look for external equity investment to make growth happen; to be “greedy”, to steal from the Sage.