As soon as a private equity house completes an investment, often before, it will sit down with the company’s management team and work out the best strategy to take the business forward and drive growth. This method of working side by side - of private equity backer sitting down with management - is fundamental to why private equity is such a successful way of building a business.
This ‘active ownership’ stands in contrast to public companies, where there are often hundreds or thousands of different shareholders. In private equity, the investors will generally own a controlling stake and are directly involved in the running of the business. A plan may include seeking out and entering new markets for growth, product development and innovation, training of management teams, improving procurement and the efficiency of supply chains, making acquisitions, strengthening financial controls and operating systems and preparing a company for exit.
By having a much shorter reporting line between investor and company management team, it ensures the interests of the two are very much aligned. Both the private equity house and the management team are motivated by the same goal – to increase the value of the business. By keeping the reporting lines short, private equity has a strong incentive to be actively engaged in the running of a company.