Selling Your Business To A Private Equity Group Is Not For Everyone — Here’s Why:
Richard Parker of Diomo Corp writes for Forbes on why selling to a PEG is not for everyone.
All investors tend to want the same things. That said, while a trade buyer may fill gaps in management – and may even prefer gaps in management so they can install their own under-employed staff – PE firms do have a strong preference for a good management team and often seek to incentivise management by giving them a share of equity. They also like sound systems, scalability / high growth prospects and, importantly, a clear route to an exit in about five or six years. Then want solid, established businesses that have great prospects and that can demonstrate these great prospects beyond doubt. (Because, let’s face it, EVERY vendor thinks his business has great prospects, but very few actually do!)
PE firms prefer businesses that have a platform that can be easily used to sell other products. And businesses that can be easily expanded through technology or by entering new markets / new geographical territories.
…unlike a full exit in a traditional business for sale transaction, sellers have to understand that this type of deal is almost always a two-step process that requires their ongoing involvement.
A PEG will acquire a percentage of the business (usually a majority stake) which allows the owner to take some chips off the table, but requiring them to remain on board to operate and grow the company with the PEG’s resources behind them for a future, more lucrative valuation and exit.