Meet the private equity firm that doesn’t want to control your business

With $100 million in the bank, and another $200-$300 million expected in the coffers before year’s end, Advent Private Capital is on the lookout for companies that could use $25-40 million in an ambitious growth plan, and want investment partners to help make it happen.

The private equity company started in very different days – the early 1980s – when government programs made raising capital from investors easy, and early stage investment was rife. Advent’s managing director, Rupert Harrington, joined in 1987, just before a crash of the Australian Stock Market put an end to the Government’s enthusiasm for providing tax relief to private investors.

“In the early 90s, we moved away from start-ups and into expansion capital,” Harrington tells LeadingCompany. “These days, we are very much a middle market player. For us, that means a enterprise value of $50 million to $200 million debt free.”

Harrington is well aware of the negative press that private equity attracts. He says his industry deserves it, in part, because it does not explain itself well to the media.

There are elements of private equity that seem ruthless. Private equity managers that specialise in “turnarounds” – investing in a company that would otherwise be insolvent – will typically cut staff and sell assets in the process of recovering profitability.

But more often, private equity investment leads to jobs and investment in technology and other business drivers, Harrington says.

And some of the managers Advent has backed have become multi-millionaires.

Advent’s long history of investment – 70 companies across five funds – has sharpened the management team’s view of prospective investment companies. “We work with any good business, we don’t have a one-size-fits-all,” Harrington says. “The important thing for us is that there is a management team to back and a leader in the management team that really understands the business and what they want to do.”

“There must be a real growth opportunity around the business and its market, so you can take it through a phase where it is a substantially better asset when you have finished your investment horizon.”

Advent takes a markedly different approach to some other private equity investors: it is not interested in a majority ownership.

This is unusual. Advent takes a minority stake, a couple of board positions, and puts its capital to work in service of the company’s growth. “We back the management’s plan,” he says.

Usually, private equity investors buy a large stake of the business, as much as 90%, buying out other investors, and then borrows debt capital for growth. The existing management team gets 10% or more between them, and cash out when the company is sold or listed at the end of the investment. The pressure of the high debt is one factor in driving the management team to perform hard, as well as the promise of a return from their equity.

“Leverage to us is an enhancer of returns rather than a driver of returns,” Harrington says.