4 Things To Consider When Selling Your Company To Private Equity

An offer to purchase your company by a private equity firm can immediately grab the attention of any business owner. Their seemingly bottomless pockets, willingness to pay above fair market value and the potential to supercharge your business’ growth can entice even the most resistant owners to consider selling. While selling to private equity is often a lucrative and shrewd business move, all business owners should take time to carefully examine their offer and consider what it really means for them.

Don’t Expect To Walk Away

Private equity firms will almost always want the owner and all or some of the management team to stay working within the business if they are to invest. Selling to private equity is not necessarily a golden parachute – they may have significant managerial experience, ideas, capital and human resources, but they are still investors. They are not going to pay over and above what the business is worth in order to have the owner or current management team walk away once the transaction is completed. You should expect to stay on and involved in the running of the business and plan for an exit at a later date. The firm will want to utilise your knowledge and your personal goodwill in the business to ensure they can extract maximum value out of their investment.

You Are No Longer The Boss

Private equity will often look to purchase a controlling stake in the company. As they might not purchase the whole company, leaving you with a lesser or minority shareholding, it will no longer be your company. You will be answerable to them and decisions you make will need to be calculated and justifiable. Often, after selling to private equity, former owners of a business who have stayed on as an employee with a minority shareholding will struggle to adapt to their new role. They are no longer the decision maker or able to make calls or spur of the moment decisions. As the owner you need to be aware of what your new reality may be.

Choose The Right Private Equity Group

When selling your business to private equity, the ideal buyer should have prior industry expertise. Adding value to your company not only stems from the monetary power of a private equity firm, but also the value that can be added through prior knowledge and experience in your field. Private equity firms often specialise in a select number of industries and will have completed numerous transactions in that field. They should know the major competitors, customers, suppliers, systems and technology in order to be able to drive your business growth into the future. Industry expertise allows the private equity firm to help scale your business and open doors that might have otherwise been unavailable. When assessing the suitability of a private equity firm looking to buy your business, you should be asking yourself whether their experience can instantly add value to your business and drive future growth.

Conduct Your Due Diligence

Private equity firms will undertake thorough due diligence on your business and similarly, you should do the same on theirs. Look at who they have acquired previously and ask to speak to other business owners who have worked with them previously. This will give you a better understanding of how they operate, your potential role moving forward and what you should expect when negotiating with them. Engaging an M&A advisor who has experience working with private equity purchases can also help you prepare and navigate issues arising with selling your company to private equity.

At Groves & Partners, we have completed a number of company sales to private equity and can advise you on all elements of the transaction. Our experienced team of advisors will help you get the best outcome for you and your Company.

Written by Stephen Groves