5 Ways Construction Firms Can Leverage Private Equity
Though private equity has historically been largely disinterested in the construction sector, its interest in the industry has started to build. With the new construction market in the U.S. climbing to broad heights, now is an excellent time to explore how a private equity firm can help you keep your company competitive, grow your business or prepare for retirement. Private equity is a great option for construction company owners who are looking to increase their liquidity and diversify to guard against the cyclical nature of the sector.
Below, we will highlight some of the benefits that construction firms gain from a private equity partnership. Here are some of the ways private equity can help your business achieve its goals.
Liquidity: Raise Cash While Retaining Control
Every company that is interested in private equity has one need in common: cash for their business. While there are many options for construction firms in need of financing, a private equity partnership offers a unique advantage for business owners. Choosing to recapitalize by bringing in a private equity firm typically allows a construction company’s leadership to stay in place and continue to influence strategic decisions.
In a typical private equity transaction, investors will purchase a significant stake in the business while enabling the owners to maintain some equity. The deal generates substantial liquidity for the owners, which allows them to diversify their personal wealth rather than tie up their net worth in the business.
Growth Capital: Expand Your Business
Do you have growth plans for your firm but lack the funding necessary to turn them into reality? Private equity investors can provide the capital you need to grow your business. Whether you are ready to bid on larger projects, expand into a new market or buy new equipment to make your firm more competitive, a private equity partnership offers the liquidity to finance your goals.
Eliminate Obligations: Pay Off Bond Debt
Due to the nature of their work, many construction firms take on bond debt in order to provide the performance guarantees necessary to bid on most large projects. You may have even made personal guarantees to obtain those bonds. Servicing these debt obligations can sometimes be a challenge and could negatively impact your firm’s ability to win other contracts. As a business owner, you may be looking for an option to get out of debt while continuing to maintain control of your company.
In the past, a construction company’s only option to eliminate personal guarantees and pay off debt was to sell their business to a larger competitor; that typically meant that owners lost their leadership roles in the merger. Fortunately, there are now private equity firms that specialize in the construction sector. Most private equity partnerships eliminate personal guarantees while allowing your management team to retain control of the day-to-day operations. These specialized firms know how to structure a deal so that your company can pay off bond debt and gain access to the financial backing it needs to pursue large projects.
Gain A Partner: Benefit From Aligned Goals
Unlike other possible lenders or investors, private equity firms have a strong incentive to see their partners succeed. Their investors’ returns benefit from ensuring that your construction firm prospers.
Choosing the right private equity partner can help your business obtain the resources it needs to thrive in a competitive sector. A private equity firm that specializes in the construction industry understands the commercial, residential and public sector markets and has built valuable relationships that their partners can leverage to identify new opportunities. Their funding, expertise and connections can give your firm an edge over its competitors.
Succession Planning: Have A New Management Team In Place For Retirement
Many construction company owners do not have an exit strategy in place to prepare the business for their eventual retirement. If you are busy handling the daily responsibilities of running your firm, it can be difficult to develop and execute a succession plan, but having an actionable strategy is essential for a smooth transition.
Due to the nature of the business, you cannot just decide to close up shop in a couple of months. Your clients and employees are counting on you to fulfill your obligations. If you own a significant portion of your construction firm and are planning to retire in the next few years, it is important to have a proactive plan in place well before your departure.
By partnering with a private equity firm, you can support your company’s transition to a new management team. The right private equity partner will work with you to create and implement a strategic succession plan. Whether that means moving from a family-owned-and-operated construction firm to a self-sustaining institutional business model or preparing for a sale, an experienced private equity firm will assist you with meeting your commitments and managing the financial side of your exit.
At HJR Global, we provide expert guidance and resources for business owners who are exploring their funding options. We can assist you with obtaining the right kind of capital for your construction company’s needs. Click here to learn more about how you can use private equity to finance your construction business.
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