Driving Value for Private Equity Firms
Economic incentives and site selection are an often-overlooked tool for private equity groups and portfolio companies to increase cash flow, EBITDA, and value of portfolio companies.
While most firms focus on EBITDA and opportunities to maximize organizational value, the most strategic groups find extra value through state and local incentives and location based cost minimization. It is important to go a step further and emphasize a strategic approach to understand the impact state and local economic incentives can have on portfolios.
Our team offers expertise and support pre and post-acquisition and maintains an ongoing dialogue with our private equity partners so firms can meet their long-term goals. We have expertise in site selection and can identify often overlooked incentive value to firm portfolios or target companies ready to relocate, expand, make capital investment, or add new jobs.
Learn why private equity firms choose our team for economic development incentives
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Economic Incentives Overview
To attract and retain growing businesses, state and local governments often provide valuable economic incentives including tax abatements, payroll tax credits, infrastructure grants, low- or no-interest loans, training grants, tax increment financing, and more.
Credits and incentives are also highly time sensitive. Because credits and incentives are designed to encourage specific activities, they generally must be secured before a company publicly commits to a project.
When Should You Consider Incentives?
Private equity groups should be prepared to explore incentives anytime a portfolio company is ready to relocate, expand, make capital investments, or add new jobs. The location of an operation is particularly important, as it can have a profound effect on cash flow, operating costs, workforce, and ultimately, the profitability of your organization. Reach out to our team today if any of the below are relevant to your portfolio companies:
- Adding 15 or more jobs over 5 years
- Buying, leasing, expanding or building a facility
- Purchasing $1 million or more in new equipment
- Acquiring or merging with another business
- Relocating operations
- Indiana Portfolio Company
- New York PE Firm
- Pretzels, Inc.
An Indiana based portfolio company of a private equity group based in Texas was set to create 180 new jobs and invest $70M in capital equipment. This growth had significant indirect tax and operating cost impacts that would affect EBITDA of the company. Our team led negotiations with state and local government officials as well as energy providers with a focus on reducing operational costs. Through our process, we secured $15.8M in total incentives for the client with an annual impact of nearly $1M in EBITDA over 10 plus years.
A New York based PE firm's portfolio company needed to find a new location that could accommodate professional and manufacturing headcount growth as well as increased production output. In addition to the real estate itself, labor and tax environments were priority issues in the decision making process. Our site selection and incentives team worked with the company's real estate team to evaluate multiple relocation options, but the optimal location in terms of real estate and labor was in a location with an unfavorable tax environment. Our team at McGuire Sponsel successfully mitigated the tax issues through procurement of state and local credits and incentives, allowing the company to see a positive EBITDA impact of more than $2.5 million.
Pretzels was considering significant capital investment to increase capacity, including expanding its facility in Plymouth or locating a new facility. A new or expanded facility would require $70M in new real estate and equipment and 150+ new employees. Pretzels, Inc. hired McGuire Sponsel to negotiate and procure economic incentives on their behalf in support of the company’s considered expansion/relocation. McGuire Sponsel assisted with a financial analysis for multiple sites and negotiated to procure tax credits and incentives to assist with expansion in Plymouth.