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Over the past few years, the private equity industry has had a number of unreasonable accusations levelled at it - accusations that have often ignored the fact that experienced practitioners really do know what they are doing and try to support the businesses they invest in based upon their experience and expertise.

Private equity investment to SMEs is currently, and will remain in the future, one of the most important aspects of the UK’s financial services industry. In very broad terms, without an active private equity and corporate finance community some businesses would not thrive and prosper. History has proved this, and contrary to popular belief, business cannot be built on bank lending alone.

The ingredients of a good private equity transaction must always include a close working relationship with a knowledgeable management team whose strategy is clearly outlined in a dynamic and challenging strategic plan. This is a fundamental platform upon which growth can be delivered and a business positioned for the next stage of its development.

Good private equity also involves a number of key business disciplines without which the business opportunity and subsequent investment opportunity can be lost. From the time of investment, there are numerous ways in which a private equity investor should look to add value to that business and accelerate the growth strategy.

Successful investment can be tough to achieve on a long-term and consistent basis, but our recent successes with VSG, CMG and Omega Red really reflect our track record in identifying companies which have profitable growth potential. These three exits produced an average IRR of more than 40 per cent and a money multiple of 2.4x, which are great results.

Each of these deals really epitomised the benefits of thoughtful and strategic private equity for UK SMEs. The original transactions considered post investment activity, development of strategic plans and identification of next stage development, so in turn, produced a great result for all parties.

These exits truly exemplify why old fashioned private equity really does work for SMEs. They are each great examples of how private equity is successful from both a business growth and wealth creation perspective; and the core of this approach revolves around the relationship between a knowledgeable private equity partner and a high quality management team.

Exit timing is often misunderstood in private equity. A good private equity investment involves working with a management team in order to judge when it is the right time to realise the investment. This is when relationships are key and there is a good understanding between all parties on the dynamics of this business change. However, what remains common to all is the essential requirement to position the business correctly for a future buyer.

The success or failure of a private equity investment invariably rests with the people responsible for that business, and good middle market private equity must have a good understanding of the business dynamics if that business is to succeed. At LDC Midlands, we have a portfolio of 17 investments with a combined turnover of over £1bn and employing more than 16,000 people. It is therefore imperative for the region as well as the business that we understand the market we are in. Thoughtful collaborative private equity is therefore fundamental in order to produce the right results for all parties.

Martin Draper is managing director of LDC in Birmingham and won the Dealmaker of the Year and Venture Capitalist of the Year awards in our Dealmakers Awards 2010

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