How entrepreneurs can unlock the value of private equity for their businesses
RMB Corvest proves how entrepreneurs and private equity players can work well together
RMB Corvest is a leading local player in private equity. The company invests in well-managed, medium-sized businesses across South Africa and sub-Saharan Africa.
“We typically look for entrepreneurial assets with a proven performance record,” says Mike Donaldson, CEO of RMB Corvest.
Like entrepreneurs, private equity operates in the higher-risk investment arena. “Neither entrepreneurs nor private-equity players are satisfied with mediocre performance or with average returns,” says Donaldson. “Both would rather carry risk for superior returns – and both have the foresight to perceive high yield potential.”
Entrepreneurs are required not only to back their own vision, but also to innovate in the marketplace – where this level of engagement demands the ability to coolly make difficult choices. “By their very nature, entrepreneurs are not scared to challenge the hegemonies of major blue-chip corporations or established industry,” says Martin Coetzee, director at RMB Corvest.
This competitive, challenging terrain is the kind of environment where private-equity players typically pursue investments that offer excellence combined with significant growth potential. “RMB Corvest essentially backs medium-sized businesses that are invariably up against the big players – including major multinationals,” says Coetzee.
The need for liquidity – and operational freedom
Entrepreneurs require finance to achieve the unique impact they intend to make in the marketplace – and private equity offers this liquidity. “Importantly, it offers far easier access to capital, cutting through the red tape that ordinarily restricts expansion,” says Coetzee.
Beyond providing liquidity, the correct private-equity partner will add value with appropriate business insight. However, most private-equity players prefer non-intervention regarding operations. “In this sense, private equity gives entrepreneurs a free hand to do what they do best, which is to create value for all shareholders,” says Donaldson.
Significantly, private-equity players favour the concept of having “skin in the game” – where the management team of an investment vehicle places its own capital alongside any private-equity contribution. “This alignment of interest is imperative regarding investor confidence,” says Donaldson. “The confidence of any good entrepreneur is evidenced through a direct interest in their own business.”
Where entrepreneurs hold such confidence in their vision that they are prepared to risk a significant portion of their own capital as invested in their business, private-equity partners and senior debt-lenders will respond in kind with greater assurance and commitment. “If management is not risking its own savings, then it is unlikely for a deal to ever succeed,” argues Coetzee. “Direct interest is a critical stimulus in any enterprise.”
Private equity will generally, and regularly, back the same entrepreneurs across different companies and sectors. “Private equity recognises and champions the ability of gifted business individuals,” says Coetzee. The success of all businesses invariably lies with a good management team.
Where an individual has demonstrated extraordinary skill in the market, private-equity partners are more than happy to repeatedly back that individual across different investment opportunities. “Effectively, private equity will back the right entrepreneurs with a good growth story,” says Donaldson. “The bottom line is that funding is always available for market-savvy entrepreneurs with the right outlook.”
About RMB Corvest
RMB Corvest is a private equity company and a member of the First Rand Group. Its status as an on-balance sheet private equity company allows it to use its own funds for investment rather than third party funds. This ensures that the company is able to invest for the longer term and is not subject to exit timing pressures. For more information on RMB Corvest visit www.rmbcorvest.co.za.
This article was paid for by RMB Corvest.