EDITOR’S NOTE: Maggie Musgrave is a corporate development associate with LDI, Ltd. This viewpoint originally appeared in the Indianapolis Business Journal. You can find out more about LDI here.
When I tell people that I work in private equity, I get a range of reactions, from “what’s that?” to “like Richard Gere in Pretty Woman?” The reaction that gives me pause is, “Really? I didn’t know we had private equity in Indiana.”
I’ll concede that private equity may have a marketing problem. Somewhere along the way it got a bad rep, which is a shame when you consider the impact private equity has had in Indiana. Our private equity industry is both healthy, and growing.
Private equity invests capital for ownership positions in mature, stable companies. This capital can be a key ingredient to unlocking a company’s growth potential. At LDI, we work with companies that can see the path to growth, but are constrained by lack of capital or expertise and need a partner to drive their development. This can mean funding for greater production capacity, new product development, or expansion through strategic acquisitions.
Good private equity partners take time to understand a business and its growth potential, rather than focusing on balance sheet engineering to provide risky, artificial returns for outside investors. By investing capital and expertise, especially over a long-term investment horizon, private equity partners like LDI give average companies the chance to become good, and good companies the opportunity to become great.
Why is this important to Indiana? Because private equity means stronger companies, and stronger companies mean stronger economies and better communities. When a business finds a great capital partner and is finally able to turn the key on more expansion and growth, they’re not just investing in their bottom line. They’re investing in a community-wide ripple effect of more jobs and services. In fact, according to ACG Indiana, over the past 10 years private equity backed businesses grew jobs at a rate of 11.4%, compared to 9.5% for all businesses in our state.
Private equity comes in many different flavors, from traditional funds to family offices. Regardless of its form, private equity’s underlying goal is to support business growth and increase value, regardless of a company’s location or perceived sophistication. It’s a myth that companies need to be large multinationals, located in a big city or have a management team with prior M&A experience.
For example, this month Schafer Industries in South Bend partnered with a St. Louis based private equity firm to fuel future growth in their driveline and gear business. Before that, Champion Manufacturing in Elkhart found a new Toronto-based private equity partner that will invest in expanding its line of medical seating products. Both of these examples will see more employment and more growth in their communities.
Lately, I’ve had the chance to meet with promising, established companies in Fort Wayne, Warsaw, and Evansville. They are on the verge of taking their businesses to the next level, but encounter roadblocks on their way. Often these challenges can be overcome with the support of an equity partner. Support may come in the form of capital to fund working capital investments or to purchase new equipment. Management may also be in need of less tangible, but critically important, strategic guidance and operational support from a partner, born from years of working with similar businesses within an industry. A private equity partner is often able to work with the established company and provide the financial and intangible support needed for growth and expansion.
Frequently, private equity investment is positive for businesses and communities. Remember Pretty Woman? By the end, Richard Gere’s private equity firm was infusing cash and expertise to help the shipping company grow, re-energize, and build more ships. As Indiana moves forward, private equity should be seen as a valuable resource for creating growth. We have a number of good capital partners in Indiana – let’s keep the capital and growth at home.