Enter Private Equity…
Bar the door or put out the welcome mat?

We think we can do it on our own. With little effort our company will sail on smooth waters and watch the sun as it rises on our success. After all, our respected company has garnered praise, earned respect and remains in the black.

We meet investors expectations. The company is healthy and we’re progressing.

But deep down inside we know our goals haven’t been stretched and boundaries remain unchallenged. Full potential is still unrealized.

The company needs to expand.

Expansion will take a partner with capital. We don’t need a loan from the local bank or a buddy from college. Expansion—done the right way—will take tens of millions. Enter private equity…

Private equity may sound like a perfect solution or scary as heck. Either way, there’s a lot to consider. Do your research and understand just exactly what you’re getting and exactly what you’ll have to give up.

Success or failure of the partnership depends, first, on you. The process of choosing a partner—a private equity firm—is a really big deal. Like any good partnership there will be smooth times and rocky moments. The experience will (in large part) be dependent on which firm is chosen.

An examination of case studies proves a company shouldn’t necessarily choose the firm with the highest evaluation. That is only one factor among many.

For the purpose of this discussion, the focus is on expansion. But there are many reasons companies partner with private equity. Some companies don’t have quite the rosy outlook. They’re in the red and struggling for air.

Whatever reason a partner is needed there are pros and cons to be considered. The dynamics of your company—how it operates, who makes the calls and how business is done—will change. Absolutely inescapable. If change is welcomed or even tolerable, PE could be a real option.

Even if your company is healthy your new partners will break out the microscope, the looking glass…even the telescope. That’s their job. They’re looking for ways to smooth out the rough edges, make things more efficient and capitalize on their expertise.

The PE firm will examine the company with fresh eyes. With a good partner, this is a good thing. Check your ego at the door, perk up your ears and open your mind. The new partner has a lot of skin in the game. This might just allow them to make the tough decisions—without getting the heart involved. It might come in the form of management change or a shift in company direction. The changes might be numerous or very subtle.

According to business.tutsplus.com, the combination of funding, expertise and incentives that accompany a strong PE deal can

translate to a sharp rise in annual profits. A 2012 study by the Boston Consulting Group reported that more than two‐thirds of private equity deals resulted in the company’s annual profits growing by at least 20 percent, with almost half the deals generating profit growth of 50 percent a year or more.

The most difficult stage of a private equity partnership might not come in the beginning—or even as decisions are made—but in the end.

The investment horizon may come after five to seven years, or maybe ten. Before committing, research your new partners track record in exit strategies. You might catch a glimpse at your future.

A common exit is through an Initial Public Offer (IPO), selling the company’s shares to the public. Or the PE firm might prefer to exit via strategic acquisition, selling the company to another, with investors taking their share from the sale value. In a secondary sale, the exit strategy finds the PE firm selling their shares to another firm. This route is not uncommon.

Another exit strategy, often very attractive for management, is the option of buying back the equity stake from the firm.

Often taken when no alternative viable option is apparent, is liquidation. This is most often considered when the investment has failed.

Alfred Zaccagnino, the Samarian Group of Companies, finds an advantage in being a boutique PE firm. “Service is a significant element in whether a private equity deal succeeds or fails,” he notes. “ We work face‐to‐face with our partners. We work to understand where the company is succeeding and where it may need some work. Clients tend to choose us because we’re a boutique firm, not in spite of it.”

Going Green in China: Paris, Private Equity & the Promise of a Cleaner Future

The COP21 Climate Change Summit in Paris marked the first time all countries—200 in total—have agreed to cut carbon emissions. The agreement will begin in the year 2020.

This climate agreement goes farther than any previously adopted, it’s detailed, with mechanisms for enforcement and a clear path to success. But not all elements of the deal are binding, and respected environmental organizations claim it falls far short of creating real and permanent change.

Past summits found developing countries and two of the top three biggest contributors to carbon emissions, China and India, crying foul. Their argument was based on who created the problem—the U.S. and other developed nations—and who would now be punished—nations just coming into their own.

Highlights of the deal include keeping global temperatures below 2C (3.6 F) with efforts to limit it to 1.5C. The plan and its progress will be reviewed every five years.

Perhaps the most interesting to private equity firms will be the $100 billion a year in climate finance for developing countries—which includes China—by 2020, with a commitment to further finance in the future.

Clean energy investments, into a country that has no choice but to change, has long been gaining ground.

According to Forbes, while most clean-technologies are developed in the United States, they are mostly infused into China’s new infrastructure, manufacturing and power generation projects.

According to Bloomberg, in 2012—far before the Paris agreement—the country attracted $65.1 billion in clean energy investments, up 20 percent from 2011 and 30 percent of the total commitment to G-20 countries.

Investments cover a broad range of green tech—solar panels, electric cars, advanced batteries and wind generation. China may be slow, but they’re catching on.

The value for China to produce at all costs may have finally reached its tipping point—the poor air quality has had a direct impact on the health of the economy, and continues to slow it down. While corporations may want to do business in Beijing, they’re hesitant to set up shop. Talent is reticent to move to a city with tiny particle matter measured at 886 micrograms per cubic mater—more than 25 times the standard in the U.S.

China’s poor air quality has now become a permanent fixture in the country’s identity. The issue has headlined international news stories and lead arguments made by human rights activists. According to the New York Times one of China’s largest exports is pollution, as “filthy emissions from China’s export industries are carried across the Pacific Ocean and contribute to air pollution in the Western United States…”

China has no choice to change. And with change is an opportunity for investors. Clean tech may be more about dollars than wanting to create a better world, but the impact will be the same. A healthier environment will bring a healthier economy.

Alfred Zaccagnino, founder of Samarian Group of Companies, a private equity firm with a growing international portfolio, recognizes the interest in green tech, not only in China but in other markets as well.  “It’s critical, when considering green tech, to examine the subsectors. Not every element of green tech is prospering. Do your homework and run the numbers. Start there.”

Building on Private Equity Dollars

The ebbs and flows of the South African private equity industry are in direct correlation to the evolution of South Africa’s politics and policies. History has played a central role in defining the pace and the players of the country’s PE industry, possibly more so than in any other emerging market.

PE was flourishing in the United States and Europe long before it came to South Africa. Oddly enough, the foreign disinvestment of South Africa by the U.S. and Europe—as a response to apartheid—would open the market to local banks that swiftly took advantage of lucrative deals.

However, it was only after the country became a democracy and economic sanctions were repealed that the South African PE market began to rise.

According to the 2015 Southern African Venture Capital and Private Equity Association Report, in the 1990’s, with the new political landscape, international investors became major players in South Africa. This was a game-changer. New opportunities for disenfranchised populations would develop.

But not all change came without growing pains. Tax legislation and extensive regulation did not always make sense. Tweaks and extensive alterations were made after it became clear that growth would be stunted.

South Africa was not impervious to the crash of 2008; it was felt around the world.   However, because that crash hit the United States and Europe first there was time to minimize the impact on the South African economy.

While South Africa is rich with natural resources, the present PE industry is diversified, with endless opportunity. The country’s infrastructure needs are considerable. Foreign investors have government support and are welcomed to work towards closing the gap. Construction is on the rise; a record number of South Africans are now entering the housing market.

A young, rapidly growing middle class has greater spending power than ever before. Retail demands are met with the construction of shopping malls that have a wide variety of stores and restaurants. Entrepreneurs are taking advantage of new technologies and seeking additional funding from domestic and international sources.

“The people and businesses of South Africa seem eager to enter into partnerships with companies in the U.K. and North America, ”notes Alfred Zaccagnino, President of Samarian Group of Companies, a private equity firm with an expanding international portfolio. “Their neighborhoods and malls should have the same brand names that are consistently appearing in other places around the world. Samarian Group is eager to participate alongside common brands in an evolving South Africa.”

The Evolution of Private Equity

Private equity has, historically, been a private world available to pension funds, trusts, university endowments and only the wealthiest.

But times they are a-changin’.

Considered the most coveted alternative asset, individuals want in, and private equity firms are shaking off the welcome mat. But there are rules set by the U.S. Government and are meant to be followed. As long as they are, it’s a new world available to qualified individuals who seek a more diversified portfolio.

Most private equity funds require a participant to be what is termed an accredited investor, qualified client, or qualified purchaser. To which category an investor falls is decided largely by net worth and income. It’s in black and white—details are spelled out on http://www.investor.gov.

Where the black and white blur into gray can be largely found in the investor’s financial goals; his or her comfort level; how liquid they need to be and how fast. And not everyone is comfortable with the risk-reward ratio.

Private equity firms typically work with individuals through their brokerage accounts often referred to as ‘feeder funds’ that require an initial investment of $250,000, far less than previously demanded. The firms charge asset management fees, an upside for handling far more investors at lesser amounts.

And individual investors have become empowered. Getting into the private equity market is no longer limited to partnering with the big PE firms who may offer fewer choices. Boutique firms have established a reputation for specializing in certain sectors and geographies. More options can make it easier for investors to manage risk.

Today PE funds are far less private. Individual investors now have insight into performance and strategy—also critical for institutions where oversight is required.

As the landscape of private equity continues to change, the options for those who don’t fall within the ‘One Percent’ will continue to expand. As individuals react to the volatility of public markets, interest in PE funds will continue to grow.

“The world of private equity is constantly evolving,” notes Alfred Zaccagnino, President of Samarian Group of Companies, a PE firm with a growing global presence. “Individual investors want to be educated about where they’re putting their money—they do the research and utilize new technologies. Due diligence—for all parties—is the most important step toward a successful partnership.”