Private Equity Investments in the Security Industry
Joe Yacano, TEAM Software by WorkWave, CALSAGA Network Partner
Private equity firms that specialize in buying and managing companies before selling them for a profit have shown increased interest in the security industry due to the resilience security guard companies have shown during recent economic downturns, their recurring revenue model and consistent profitability in comparison to other industries.
Economic researchers who advise private equity firms are predicting a rebound in private equity deals later this year due to subsiding inflation, which means interest rates are expected to fall and could cause the cost of capital to be less expensive for them.
Business owners in the security sector who are thinking of partnering with a private equity firm should consider the kind of support their business may need to execute growth, in addition to accessing capital, experience and connections that could easily set your company on the path to success. In short, working with a PE firm can be beneficial to your business as long as both parties’ goals and values are in alignment.
What is private equity?
Private equity describes investment partnerships that buy or manage companies using a pool of capital from institutional and accredited investors. Those funds are used to support companies that need financial resources to grow, with the end goal of earning a profit.
In most cases, private equity groups (or PEGs) are led by a group of executives who have experience with running large businesses and seek out partnerships where their private equity firm can buy or manage companies that are typically unlisted on a stock exchange.
Typically, these investment firms hold onto companies for about 5 to 6 years before reselling, and unlike venture capitalists, choose to invest in relatively mature companies with a solid business plan.
Partnering with a private equity firm
Security business owners who are thinking about working with a private equity firm should spend time making sure that the investment group is a good fit for both parties. Consider working with firms that would make a good partnership and accomplish that task by getting to know the investors, along with their reputations and values, by promoting transparency whenever possible.
Working with a private equity firm could bring specialized expertise that can help a company looking to expand. For example, private equity firms can offer advice on the business strategy, provide industry connections, introduce tech or facilitate entry into new markets. In some cases, a private equity firm may introduce its own management team, which will be capable of offering support when it comes to pursuing fresh initiatives and updated business plans.
Choosing the right partnership
Knowing your level of involvement will also aid in choosing the right buyer for your business. Most private equity firms will want a majority stake in a business, however. Naturally, full ownership will give a private equity firm full control of business decisions, but some investors will want the business owner to stay on board in a consultative role. Partial ownership could be a good fit for business owners seeking capital investment.
The additional resources gained from partial ownership could take a business to the next level without assuming full financial risk. In this case, the founder would retain some ownership of the business. Alternatively, they may also stay active in the company after the sale is complete.
Although this kind of partnership could set your company on the path to success, it all comes down to making sure both groups are a good fit and that the timing is right. Experts agree, trust your instincts. If you’re not 100% confident in the decision, it’s ok to let potential investors know you’d like to hold off on the decision.
Joe is an experienced Associate Vice President of Sales with a demonstrated history of working in the management consulting industry, and he is an accomplished sales professional skilled in medical devices, biotechnology, healthcare and clinical trial management systems. With his background and experience, he came to WorkWave to develop an enterprise level sales organization and has led the charge on this task for over the past two years.