Business owners in the food and agribusiness sector have a range of business financing options as investors and financiers are becoming increasingly aware of the growth potential of the sector. Increasingly, private equity investors are approaching company founders and owners with a view to assisting in the growth of their businesses. As this is a relatively recent trend, it is useful to reflect on the characteristics of private equity investment and the role it could play in your business. These considerations apply equally wherever your business is positioned in the food and agri value chain: from farming through to processing, distribution and marketing.
Private equity (PE) is the technical term for money invested in the equity securities of businesses that are not traded on a public securities exchange. It usually applied with reference to private equity funds. These fund structures pool capital from passive investors (limited partners) for active investment management by an experienced private equity investment manager (general partner). The fund manager or general partner forms the interface with investee companies, while the passive investors do not have any direct interaction.
General feedback from business owners who have included PE in the capital structure of their businesses suggests that this has had a distinctly positive impact on their business.
For instance, a 2009 survey of businesses by the South African Venture Capital & Private Equity Association and the Development Bank of Southern Africa (DBSA) *, found that over the period 2005/6 – 2008/9:
