If you’ve decided a private equity (PE) buyout is the right direction for your business, it’s time to continue the discussion by addressing how to choose a PE firm. This article provides direction and advice for selecting a PE firm that’s worthy of taking the reins.
Your values come first
First, look for a PE firm that will uphold your business values. When you partner with a PE firm that shares your philosophies – about how to grow the business, treat customers, employees and suppliers, etc. – your company won’t lose sight of what it stands for. Rather, it will maintain the same values, while gaining powerful PE benefits such as capital, value-added services and strategic insight.
Explore the history
Similar to hiring new employees, your PE search should focus on a firm’s track record and experience in your industry. Seek a firm with a long history of investing success in helping similar-sized companies grow and prosper. A firm may also specialize in your industry.
Continuing with the new hire-PE search comparison, you’ll also want strong references from a prospective PE buyer. Ask for references from the management teams and the sellers at both successful and unsuccessful portfolio companies. By hearing their experiences first hand, you can gain a more accurate understanding of what it’s like to deal with a PE firm on a personal level, as well as its method of operation over longer periods.
Seek strategic resources
Many negative PE stereotypes focus on the rarely used “strip and sell” model. But the truth is, there are firms that add great value to their companies by bringing not only financial support but also experienced board members, advanced systems and other resources to assist management. Look for a firm that’s shown a commitment to growing its companies. Firms that have networks of retired and/or industry specific executives to provide advice, industry contacts and strategic direction for their companies.
PE firms own several companies at a time. That makes it important to find one that gives each company the effort it deserves. You’ll want to know that your PE firm partner will devote dedicated, partner-level attention to your company.
Getting deals done
One trap to avoid when selling your business is haggling with prospective buyers that aren’t serious about making a deal. Before negotiations go too far, make sure there’s a high certainty of closing the transaction. Ask what a buyer’s closing rate is on issued letters of intent. When working with a company that’s experienced at closing deals, does its homework about your business and has longstanding relationships with financing sources, you can rest easier that you won’t be wasting your time or theirs.
As a consumer and business owner, you understand the value of a responsive company, and that needs to be one of your criteria when looking for a PE firm. Expect quick responses in all interactions with senior principals of the firm. One factor that can improve responsiveness is geography. Working with a local PE firm facilitates frequent personal interaction.
Finally, the whole process must be open and honest. Your PE partner should demonstrate the utmost integrity and a straightforward approach in all their actions. Finding a firm that takes integrity seriously will help ensure a strong, successful relationship.