Darren Herft talks about what Private Equity firms seek in potential acquisitions

Whereas venture capital principally caters to start-ups, private equity offers not only up-and-coming start-ups but also already established businesses opportunities to acquire substantial investment capital.

In Darren Herft’s opinion, the perception that venture capital and private equity are the same thing is flawed.

“Private equity firms aim at the leverage buyout of companies that possess tried and tested business models,” says the Australian businessman and investor.

Darren Herft thinks that private equity firms tend to seek out businesses that just need a boost of capital and guidance to achieve phenomenal growth.

“It goes without saying that the vetting process for obtaining equity funding is rigorous to say the least.”

According to Darren Herft, a company desirous of private equity backing must convince potential investors that their investment will yield a high return.

“A lucrative leveraged buyout target for equity firms will need to have a competitive edge within its industry,” says Darren Herft.

While equity firms are sure to shake things up in their acquisitions, Darren Herft believes that a company needs to have a distinctive and visionary plan of action to even be considered for investment.

Herft thinks that businesses that have a penchant for exploring new markets and have a customer acquisition and upselling plan are considered excellent candidates by investors.

He says, “The more drivers of growth a company has, the more likely it is to become an avenue for private equity firms.”

Other qualifying factors are the existence of, or potential for recurring capital gains over a period as well as low capital requirements.

“Private equity firms prefer a business that can sustain itself after an initial investment. Firms requiring constant capital injections are better suited for venture capital,” says Herft.

Firms that are making fuller use of the latest trends or inventing disruptive technologies within their industry make for great candidates for equity investment.

Herft believes that a business that has its vision directly in line with a potential for transforming its industry or creating its own niche in the market coupled with validation of elevated capital growth will secure Private Equity being sought.

“Private equity firms understand the importance of having competent upper management as well as a sturdy organizational structure. A company with a proven track record of good decision making on part of its leadership also make it a highly desirable investment opportunity,” he adds.

The seasoned entrepreneur acknowledges that private equity comes with many stipulations. Any firm acquiring a business via a leveraged buyout might vie for significant changes in company operations and structure to make things more efficient.

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