Private Equity Backs Thousands of Small Businesses Across America
WASHINGTON — Sunshine Beverages was a good idea looking to get its grow on.
Founded by artisanal entrepreneurs Keith Vest and Joe Parrish in 2013, the energy drink company was the offshoot of Vest’s forward-thinking ad agency, The Variable.
Coming from a background of “helping clients overcome consumer indifference,” as Vest once told an interviewer, their goal for the Winston-Salem, North Carolina, company was as simple as it was audacious — to turn the energy drink market on its head by marketing healthier products made from natural ingredients.
In no time their first offering, the ginger- and berry-flavored Legendary Sunshine, was a smash in their hometown. The problem was, their distribution network extended only to North Carolina’s Piedmont Triad region, including a few select locations of Lowes Foods grocers and Quality Mart convenience stores.
Then Teall Investments, a private equity firm, transformed the business into a national enterprise almost overnight.
“Teall’s investment in Sunshine allowed our company to no longer be a ‘side business’ of The Variable,” Vest said in a 2017 press release announcing the tie-up.
“Since the investment a few months ago, Sunshine has grown from zero to eight full-time employees and rapidly accelerated our footprint from North Carolina’s Piedmont Triad region to all parts of North and South Carolina, Georgia and Virginia,” Vest said.
It’s a story that founders of new, promising businesses tell repeatedly. If small businesses are truly the engines that drive the U.S. economy, then private equity investments are the fuel that makes those engines go.
According to a report prepared by the accounting firm Ernst & Young LLP for the American Investment Council, of all businesses receiving private equity investment, 86% employed 500 or fewer workers, and roughly a third employed just 10 or fewer workers.
The benefits to small businesses are shared by the private equity industry, which employed 11.7 million workers in 2020 in the U.S., creating a win-win for all involved.
The ripple effects continue, as suppliers to the private equity employers — representing everything from stationery suppliers to restaurants and gas stations — employed an additional 7.5 million workers across the economy.
Overall, private equity employers paid $218 billion in federal, state and local taxes in 2020, an increase from 2018, when the sector paid $174 billion in taxes, two-thirds of which went to the federal government.
“This study underscores how private equity helped drive America’s economic recovery from the COVID-19 pandemic and helped small businesses keep their doors open,” said AIC President and CEO Drew Maloney in a written statement.
“Private equity also pays hundreds of billions of dollars in taxes to help fund programs at all levels of government. We need policies that encourage these investments, not stifle them, so private equity will continue to create growth and opportunities in communities across America,” Maloney concluded.
Private Equity Touches Every Business Sector
When Teall Investments invested in Sunshine Beverages it added Lizzie Ward to the company’s management team, appointing her as president.
Previously, she had worked directly with Teall Investments Chairman Ben Sutton Jr. on acquisitions and corporate development.
Such integration is typical in the private equity sector, and her keen eye for business details helped Sunshine Beverages expand into more than 1,500 grocery stores and 800 convenience stores, independent retailers, craft breweries and other locations by early 2018.
“Teall’s investment has enabled us to activate our growth strategy in the South, and our products are now found on the shelves at Food Lion, Ingles and Harris Teeter,” Vest said when the investment was announced.
The largest share of U.S. private equity sector employment was estimated to be in business services. Business services accounted for 4.2 million jobs, or 36% of U.S. private equity sector employment in 2020.
These services include finance and insurance; real estate and rental and leasing; professional, scientific and technical services; management of companies and enterprises; administrative and support services; and waste management and remediation services.
The second- and third-largest shares of the U.S. private equity sector workers include personal services and manufacturing, respectively. These are followed by retail trade, information technology, wholesale trade, transportation and warehousing, and construction. For a little perspective, that’s a total of 7.5 million workers.
But numbers tell only part of the story.
In another arena, a private equity investment is helping Rob and Lynne Baer, of Silverthorne, Colorado, create “The Pad,” a boutique hostel-hotel hybrid that will accommodate the needs and interests of different types of travelers.
Private equity small business investments even foster medical breakthroughs.
One recipient of this support, a company called Spinal Stabilization Technologies, recently earned the FDA’s “breakthrough designation” for a device it developed to help alleviate one of the most common causes of lower back pain.
The PerQdisc — the only commercially available lumbar nucleus replacement system in the world — replaces the nucleus pulposus of the intervertebral disk in the L1-S1 spinal region in patients with single-level discogenic pain.
The Ripple Effect
When discussing economic impact, the ripple effects of investment deserve more attention.
Recipients of private equity investments need suppliers. According to the Ernst & Young report, this supplier activity supported approximately 7.5 million jobs in 2020. The remaining supplier employment includes transportation and warehousing, wholesale trade, agriculture, forestry, fishing, hunting, information, retail trade, construction, mining, quarrying, utilities, and oil and gas extraction.
Consumer spending of workers in the private equity sector and the sector’s suppliers was estimated to support 11.9 million jobs throughout the U.S. economy in 2020.
The largest segments of employment related to the consumer spending of workers in the U.S. private equity sector and the sector’s suppliers were estimated to be personal services, business services and retail trade.
These three industries comprise more than three-quarters of the related economic activity.
The remaining employment related to the consumer spending of workers in the U.S. private equity sector and the sector’s suppliers includes manufacturing, transportation and warehousing, wholesale trade, agriculture, forestry, fishing, hunting, information and construction.
This article was produced in partnership with and paid for by the American Investment Council.