If you’re considering a Private Equity (PE) firm to work with, finding one that offers a win-win relationship for both parties will be a big part of the process. As such there are a number of questions you should be prepared to ask the firm when negotiating on your company’s behalf. These include:
What is the firm’s track record with similarly sized companies?
What does the potential partner offer beyond capital?
What are the firm’s communication style and expectations after the deal closes?
Can you see yourself having a successful relationship?
Whilst the first of these questions is based on the Private Equity firm’s track record, the last three questions are based on the intangible aspects of the relationship. This is because, in reality, financial engineering by the PE firm will make up about 10% of the post-integration success, and 90% will be driven by culture, communication, and the ability of the management team of the acquired company to work with the PE firm and the group they assign to it.
The last three questions are the ones you should focus on when spending time negotiating with a PE buyer. Since the majority of PE transactions are structured as partial sales (which usually means that the existing owner and management team are retained and participate as partial owners post-sale) it is vital that you can work well with the firm investing in your business.
As you go through due diligence, the firm will be asking many questions about your business. You should be asking similar questions of them and their principles. If you request to speak to the owners of other companies that they have acquired and find out what their post-acquisition has been this will give you a good insight into the workings of the firm. Ask what plans the equity firm has to grow your business – this is not only financially important but important to your business’s legacy. Furthermore, you should discover whether the firm plans on providing help with key areas of the business such as marketing, sales and web development and whether they have any industry experts in their team that they plan on inserting into the business.
Most importantly is a question that you should ask yourself: do you see yourself having a successful relationship with the firm once the deal has been closed, and can you see yourself becoming part of a team that makes collaborative strategic decisions together? This often becomes crucial to Generational Capital Market’s clients as they seek investors. We are often told post-acquisition that as they got to know buyers, the ongoing legacy of the business became increasingly important.
Getting to know the PE firm that funds your transaction helps owners to gain confidence that the relationship will work moving forward. When you work with Generational Capital Markets, our experienced dealmakers will ensure that you are fully comfortable with your buyer before closing the transaction, whether that means a PE buyer, strategic firm or an off-shore entity.
Find out about the successes of Capital Markets (part of the Generational Group) by viewing our private business successfully completed transactions.