As business owners approach retirement age, they may be contemplating the most effective way to transition ownership of their company to family members, management or a buyer. Private equity firms provide an excellent vehicle for accomplishing any of these objectives.
A PE firm will provide equity capital that can be used to provide full or partial liquidity to the existing owner, while providing the second generation or management an opportunity to stay invested in the company. A PE firm can also act as a strategic buyer if they own a portfolio company in the same industry. Either way, a PE investment often gives owners an opportunity to ease out of the business by staying with the company for an additional one to five year transition period while enjoying the benefits of PE ownership.
The benefits of PE ownership are many and include access to capital and professional advisors. Not only does the PE firm invest from their own funds, PE firms have established relationships with a variety of debt and other financing sources that may provide growth capital. In addition, many PE firms utilize the expertise of former senior executives that can offer strategic direction and industry knowledge to the acquired firm. Moreover, PE firms can assist with implementing new systems or processes that are needed to grow or be more competitive in the marketplace.
Many times, the resources that a PE firm provides free up the owner to concentrate on his or her area of expertise, which may be selling a product or service, or developing new technology.
Any way you look at it, PE investment as a means of transitioning ownership is a win-win for all involved. Business owners gain liquidity, can grow their businesses, and go back to doing what they love best, if that’s what they choose. If they stay partially invested, they have the potential to sell their remaining stake at a higher valuation. PE firms also benefit by providing the resources to take a good company to the next level and earn an attractive return on their investment while doing so.