How can ambitious firms achieve scale?

Laura Dillon, head of the Irish arm of €9bn private equity player Waterland, on how Irish businesses can scale for international success.

The Irish economy has proven reasonably resilient in recent times and opportunities are appearing on the horizon for businesses with ambition and a strategy for growth, both in Ireland and especially on the international scene.

The evolving exports market offers Irish companies clear channels for expansion, and private equity can provide the support and momentum to help them reach those levels of European and global scale.

“When you’re planning the next phase of growth for a business, you need to identify and develop potential future leaders and senior managers”

Put simply, private equity is capital invested into a company that is not listed on the stock market. These investors partner with business owners and management teams to scale and accelerate their growth, both organically and through acquisitions. And in most cases, this is achieved quicker than they would on their own.

As it stands, more Irish small and medium-sized enterprises (SMEs) need to embrace wider ambitions and international expansion. According to the OECD, Ireland’s SME base comprises many smaller firms, with a small number of larger companies contributing most of our exports, relative to other EU countries.

Getting the right support to scale

To take the first leap into export markets or to diversify and scale your export strategy, you need strong and trusted partnerships. This opens up access to capital, expertise, resources and training as you seek to evolve your organisation to the next stage of its growth journey. 

This is where private equity investors can play their part and support a high-potential SME with strategic ambitions aligned with an established business model. They not only bring funding, but real expertise in backing businesses to scale – while at the same time ensuring Irish businesses remain headquartered in Ireland as they look to build their international reach – typically through acquisitions.

The boom in private equity

According to the Irish Venture Capital Association (IVCA), investment in companies by Irish private equity and venture capital firms was up 19% to €213m in Q3 from €193m in the previous quarter.

Similarly, research from Arthur Cox and Mergermarket published in June 2021 noted there were 57 private equity investments into Ireland during 2020, worth a total of US$5.27bn, up from 38 deals worth US$2.83bn in 2019. That growth is likely to continue, with 69% of private equity investors saying they expect to increase their own investment.

Sought-after sectors for private equity

Typically, it’s high-growth companies that could offer a high rate of return who succeed in securing equity investment. These innovative companies usually have the potential to become market leaders or first movers in a growing market or sector.

Private equity firms are especially active across engineering, manufacturing, healthcare, and technology. In fact, volumes breached the $100 billion level in Ireland with nearly 700 announced transactions across 2021 – a new record!

Is your business ripe for investment?

Private equity firms usually look for investment opportunities where a business can show a powerful business plan, with a strong sales and product pipeline, and a clear path to growth.

Investors also want to see reliable cash flow and an experienced management team in place – both key ingredients when it comes to achieving scale.

In return, investors will work with you to identify and deliver on strategic opportunities. They often help entrepreneurs and family members to de-risk their portfolio, creating financial stability while the business scales and allows for succession planning.

At Waterland, for example, we want to partner with businesses that have robust leadership and governance, along with a clear strategic direction, a stellar business plan and a passion for growth.

We focus on investing in SMEs and entrepreneurs across four key areas: outsourcing and digitisation, leisure and luxury, ageing population, and sustainability. We help businesses in those fields expand by accelerating their growth plan faster than they could on their own. Some examples include building new factories or buying complementary businesses. 

Before approaching an investor – some Dos and Don’ts

Successful private equity investments hinge on the quality of the underlying relationship as much as on business performance. Private equity is a symbiotic relationship. For its success, the strategic ambitions and the culture of both should align.

The first step towards building a rock-solid relationship is to do your homework. Take the time to research and understand a private equity firm’s objectives, criteria and goals for the partnerships it pursues. By analysing its existing partnerships and the credentials it seeks, you can understand if your organisation and theirs might be the right fit.

Look at your leadership and succession planning

When you’re planning the next phase of growth for a business, you need to identify and develop potential future leaders and senior managers, as well as individuals to fill business-critical roles.

Succession planning programmes typically include practical and tailored work experience relevant for future roles. It also involves proactive development through job moves or secondments around the business that can provide a ready source of future leaders.

Make sure your house is in order

Private equity firms are always keen to see high standards of governance and compliance. In fact, in the Arthur Cox/Mergermarket survey, 95% of investors identified economic, social and governance (ESG) considerations as important when investing in Ireland, with more than half of those investors saying they are extremely important.

You need to be able to show clearly how your business is structured, how it adheres to regulations, how you manage operations and how you strive for sustainability.

There also needs to be internal buy-in to deliver success. Have the conversation with your leadership team before making any concrete moves. After all, private equity is not right for every business, but by discussing the option internally and by getting advice from trusted external advisers, you can start to assess if it will work for yours.

Laura Dillon
Laura Dillon is a Principal at Waterland in Dublin, Ireland and is leading the Waterland Irish Team. Prior to joining Waterland, Laura was a Principal at Riverside Europe Partners in London, UK. Prior to this, Laura co-founded and was CEO at DSI Distribution Solutions Ireland Ltd, a leading healthcare distribution company in the Irish market. Laura started her career as a Strategy Consultant with McKinsey & Company and she has also worked for Intelligent Finance (internet bank of HBOS Plc) as their Strategy Manager, for WorldRemit as their Chief of Staff and a Senior Associate at Apax Partners. Laura holds an MBA degree from Harvard Business School, USA and a Bachelor's degree in Chemical Engineering from University College Dublin, Ireland.