Owners who wish to sell their company need to include private equity groups in the sales process. Depending on the situation, many will already own or control companies in the seller’s industry and would be perfect candidates as potential buyers. While equity groups have different acquisition criteria, the requirement that the selling company has certain specified levels of revenue and profitability is ignored when the group already owns companies in the seller’s industry or a closely related one, either horizontally or vertically.

Even when considering an outright sale of the company, the owners may wish to consider retaining an equity interest and bringing an equity group in as a partner. Some instances where this might make sense:

    • The company needs growth equity;
    • Too much of the owner’s net worth is tied up in the assets of the company;
    • The owners wish to take advantage of a recapitalization. One example: The owners (i) cash out immediately for the full value of the company; (ii) continue to own a significant equity interest in a growing and more profitable company; (iii) maintain operating control; (iv) provide key management with equity and (v) cash out again 3-7 years later;
    • Generational transfer of ownership;
    • Incumbent managers wish to purchase the company;
    • Inactive owners wish to sell;
    • The owner would like to retire in 3 – 7 years;
    • The company is financially distressed;

While each situation is different, the owners need to determine whether partnering with an equity group makes sense, considering that the equity may bring capital resources, as well as skills and knowledge the company may now lack.

Here are some ways the right equity group can help a company grow:

    • Access to new markets, including overseas
    • Strong industry knowledge
    • Strategic alliances within the industry
    • Invest in new product development and expansion
    • Prove undeveloped business models
    • Easier access to capital
    • Stay abreast of new technologies
    • Expertise to help you grow through acquisitions
    • Complement strategic planning and aid in developing the long-term vision of the company
    • Additional marketing acumen
    • Advanced administrative and control systems
    • Identify existing and future organizational needs.
    • Sophisticated legal and financial counsel
    • Global organizations. Many private equity firms have professionals offshore who are native and located in the most attractive markets in the world. They assist in setting up new businesses, in making international acquisitions, as well as in establishing joint ventures.
    • Help when you need it in the form of requested objective advice
    • Cross-selling to the equity group’s other portfolio companies
    • Position the company to attract strong interest at exit
    • Strengthen management team if needed
    • Build a board of directors with high-level professionals
    • Monitor and upgrade IT systems as needed
    • Monitor and facilitate strong banking relationships
    • Quite often, equity groups are not interested in running the company. They may be headquartered halfway across the country.

The above is just intended to provide an overview of private equity groups and how a partnership with them may be in the best interests of the present owners.