Private Equity Investing: Today’s Challenges

Private equity groups, including holding companies and early stage venture capital firms, face growing challenges today more than they have since the mid-to-late 1990s. With the public markets currently closed, a very slow economic recovery and the lowest corporate valuations in a decade, private equity investors are spending almost 100% of their time concentrating on existing portfolio companies rather than sourcing and making new investments.

Focus Enterprises’ principals have been very successful in assisting portfolio managers with certain parts of their existing portfolios. Over the last 24 months our firm has been engaged by or otherwise worked very closely with The Psilos Group, Sterling Venture Partners, G.L.Ohrstrom Company, Weston Investments, Argentum Capital Partners, First Analysis Corporation Funds, WhiteRock Partners, Chisholm Private Capital Partners, Mid Atlantic Venture Funds, Comerica Bank and the Jordex Fund among others. For these and other firms we have provided the following services:

  • Merger, Acquisition and Divestiture--In an environment of constrained investment, portfolio managers are continually prioritizing their portfolios to determine which of their holdings will be granted continued investment. Focus principals have assisted these private equity groups including venture capital firms in selling or merging those average performing companies that will not make the return on investment criteria established by these firms.
  • Capital Raising for Remote Holdings--During the middle and late 1990s, during a high level of investing activity, many east coast private equity groups opened offices on the west coast and vice versa. Today, while many of these remote offices have been closed, continued investment and management of these remote portfolio companies is still a requirement. Over the years, Focus principals have assisted private equity firms with sourcing and organizing follow-on equity rounds for these companies that are remote from their owners or investors.
  • Debt Placements--Where financial performance allows for other than equity funding, companies are increasingly turning to the debt markets. The current economic climate is putting intense pressure not only on portfolio managers but also operating management of portfolio companies to focus their time and attention on the tactical operations needs of the business. Focus principals have assisted operating management with identifying the most appropriate debt sources and negotiating the best terms, as our firm has a broad network of funding sources including commercial banks, asset-based and mezzanine lenders and specialty finance companies.
  • Strategic Partnering and Alliances--A particularly attractive growth strategy in today’s environment is strategic partnering and alliances. These arrangements can take the form of distribution channel agreements, OEM agreements, joint ventures or manufacturing agreements with domestic or off shore partners. These partnerships and/or alliances can add enormous value to the portfolio company and, quite often, can reduce or eliminate planned continued investment in the company by the venture capitalist, holding company or later stage private equity group.
  • The Operations Audit--Focus principals routinely complete full operations audits for investment managers assessing the health of the entire portfolio company. These audits include a detailed analysis of the sales and marketing function, product development, research and development, operations and customer service, technology infrastructure, intellectual property and accounting function, and a review of legal and corporate governance issues. This Focus service is particularly attractive to investors who are remote from the portfolio company and to those investment managers who would like to have an independent third party evaluation of a particular portfolio company.