Micro Private Equity: Fortune Favours Legacy
Over a pint in a pub, on the tube to work or at home with a bowl of spaghetti many of us dream of escaping the rat race to become independent, to set our own hours and to become an ‘entrepreneur’. Whatever it is, we’ve all had ‘that idea’. That idea that sparks the belief and gets us daydreaming of building an empire.
The reality for the majority is tough though.
The kill-rate of start-ups is rising, getting investors to part with their hard-earned money to raise the latest SEIS or EIS round is harder than ever and risk-on behaviour has dropped from its dizzy heights of the zero interest-rate era.
So the question becomes, ‘why try to build an empire when you can buy one?’
As we face our biggest transfer of wealth to-date, a plethora of legacy family/entrepreneur owned businesses are looking to sell, wind down or find their next leader to take over management.
These businesses may not be flashy, they may not be big but they’re steady and have long been the backbone of our economy and source of many’s household wealth. They too can provide the independence, wealth and longevity that many stuck in the rat race daydream of leaving.
This conundrum has led to the rise of the term ‘Micro Private Equity’ and it provides a much needed solution.
It aids in the transition of legacy businesses, providing liquidity to what has otherwise been a grey market.
With an Enterprise Value less than £10m, Micro Private Equity is free from the prying eyes of large private equity firms. As such, these businesses can mostly be bought at attractive multiples in a streamlined and uncompetitive M&A process.
They’re profitable, have teams and processes in place yet are in need of invigoration and provide ample opportunity to roll up as part of a buy and build to sell at a higher multiple.
They can be mostly financed on debt through cash flow or asset based financing.
Whilst the rise of Micro Private Equity is still at its nascent stage it has gained prominence in the USA. The rise of SBA loans (Small Business Administratio) has seen an influx of aspiring entrepreneurs take out Personal Guarantees to buy their way to freedom.
Whilst the UK has been slow to follow, the opportunities are still there in abundance. Like all things, with time the UK will follow suit, multiples will increase and opportunistic Private Equity firms will crop up as we see a shift in smaller ticket sizes in order to deploy more capital.
In a world characterised by grand ambitions, fortune may favour legacy over the latest flashy start-up. For the rise of Micro Private Equity has only just begun.