To PE or not to PE

Tom Matthews

There’s often a stigma of private equity investors as takeover groups, who will buy a business, break it up into pieces and sell off the parts. Or, worse still, buy a business and aggressively take costs out (often by reducing headcount).

That may be the way some private equity investors look to make returns but growth investors, like Pemba, seek to add value to the companies they back and make their returns the “old fashioned way” by accelerating growth in revenue and profits.

The key difference with growth investing

For growth investors, it’s not about cutting costs to boost profits — it’s about boosting the long-term viability of the company by bringing capital, expertise, strategic direction, access to networks and aligning incentives to motivate the key personnel within the investee company to deliver the key growth initiatives.

What we look for

At Pemba, we focus on businesses in the lower middle market. We look for fundamentally good companies where we can help founders and management teams accelerate profitable growth – and do it quickly.

We won’t invest in a business unless we can contribute to and accelerate a company’s growth potential. We focus on opportunities where we can implement value creation initiatives to drive top line revenue growth and develop commercial excellence to help investee companies sharpen how they approach their chosen markets.

How growth investors add value

Here are six ways a growth investor like Pemba can potentially add value to your business:

Cash for growth. Private equity funds have deep financial resources and can provide the capital required to fuel growth. At Pemba, we provide capital to fund both organic initiatives (such as investment in sales and marketing, new office openings, new software or product development, etc.) as well as other ways to accelerate growth (e.g. strategic bolt-on acquisitions, partnership opportunities, etc.). We also invest in the back-office infrastructure to ensure that all growth is sustainable (e.g. finance, systems, management, etc.)
Expertise. Private equity investors can supply the talent your business is lacking. At Pemba, we work in partnership with founders and management to set the strategic vision for the company and, where required, bring in external expertise to help the company deliver on its key growth initiatives
Networks and connections. At Pemba, we have a deep network of trusted advisers, management teams, board members and consultants. The stability, quality and depth of talent and commitment across this ecosystem has greatly assisted Pemba in driving outcomes for its portfolio companies. The right growth investor is your path to a new community of peers and valuable business connections
Management incentivisation. If you are looking to reward your management team, then private equity is one way to do that. Private equity investors want to ensure your management team stick around for the long-term and are financially rewarded for the company’s success. At Pemba, we often provide equity participation and worthwhile incentive programs to make that happen
Proven returns. Growth investors like Pemba are experts at creating value. One study by Boston Consulting Group found that c.70% of private equity investments generated at least 20% growth in profits and nearly half saw growth of 50% or more
Commitment to success. When we make an investment at Pemba, we have a “whatever it takes” commitment to that company’s growth strategy. As we are also shareholders, we have a vested interest in making sure your business does well.