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MUSGRAVE: Giving good firms the boost to be better

August 12, 2017

MusgraveWhen I tell people 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 might have a marketing problem. Somewhere along the way, it got a bad rap, which is a shame when you consider the impact private equity has had in Indiana.

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. 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 means 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, it’s not just investing in the bottom line. It’s 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 percent, compared to 9.5 percent for all businesses in our state.

Private equity comes in many 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. For example, this month, Schafer Industries in South Bend partnered with a St. Louis-based private equity firm to fuel growth in its driveline and gear business. Before that, Champion Manufacturing in Elkhart found a 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 that might come in the form of capital for working capital investments or to purchase new equipment. Management might 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.•

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Musgrave is a corporate development associate at LDI Ltd.

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