Private equity (PE) has always had a reputation for problems. This was generally caused by decades of ruthlessness from buyout firms, which were known for slashing jobs, breaking legacy promises, and flipping companies for quick profits. 

Today, however, things have changed massively. Ethical private equity is becoming the new norm, rather than an exception. Because of this, modern mergers and acquisitions (M&A) deals now prioritize integrity, long-term value, and respect for all stakeholders.

What Ethical Private Equity Really Means

Ethical private equity is about achieving profits through principled, sustainable practices. In other words, this means focusing on long-term value creation rather than short-term flips. 

With such private equity, firms honor their commitment to employees, customers, and the original owners, optimizing existing people and practices within the company.

Past vs. Present: How Private Equity Has Changed

Historically, firms used to cut costs to boost a company’s profits. They’d then exit the investment in like 3-4 years. The problem with this is that it came at the expense of employees and long-term growth.

Today, though, the average holding period is much longer. It’s around 5-7 years. Firms now also prioritize improving operators over slashing costs by reducing the number of employees, making it more “ethical” than before.

Why Ethical Private Equity Matters to Sellers

When an owner is ready to sell a company, it’s often about two things. Money and legacy. 

Money is great, sellers want it, of course. This is one of the main reasons they built a company. However, they also care about what happens to their employees, brand, and their life’s work. 

Commonly, sellers would accept a slightly lower price from a buyer they trust who’ll continue their legacy. That’s probably why 60% of sellers would consider seller financing. 

Ethical Private Equity and Islamic Finance

If you’re worried about private equity, something that you may want to consider is Islamic Finance. This is because it provides a built-in model for ethical investing. 

Shariah law mandates fairness, social responsibility, and risk-sharing in business. Therefore, it’s an ideal structure for both buyers and sellers looking to partner together. 

The Role of Advisors in Ethical Transactions

Having an experienced M&A advisor is non-negotiable when it comes to ethical, successful transactions. 

Advisors can help structure deals to protect both sellers and buyers. They can protect the seller’s interest while ensuring the buyer’s values align with the seller’s goals. 

If anything, a trusted M&A advisor is someone who can guarantee an ethical transaction, whether using traditional financial tools or Islamic finance. 

Conclusion 

There are a lot of myths surrounding private equity. Once upon a time, these were true. Now, however, they couldn’t be any further from the truth. 

Ethical private equity is the current trend, and it’s here to stay. It ensures that sellers are ready to sell and buyers are ready to grow. 

If you’re looking to buy, sell, or partner with a company, feel free to contact us. Our team will help you pursue profitable deals that you can also be proud of.