Evaluating Private Equity Firms Before Doing Business With Them
How do you know which private equity firm will be the best partner for your business?
Rond Capital posts to provide some advice.
Unfortunately for entrepreneurs, there is no “Yelp for private equity firms.” There are a few online portals which serve as a starting point, but the information on these websites is far from comprehensive. In some cases, it’s inaccurate and unhelpful.
For entrepreneurs who are beginning discussions with private equity firms, we’ve created a list of questions that will help you better evaluate which private equity firms make sense for your business.
They suggest that you start with some online research on the company to get an idea of what they’re about, the type of acquisitions with which they typically get involved and whether they invest in businesses like yours. The large majority are looking to provide growth capital rather than liquidation capital (to cash out current owners). But, also, are they looking to take on debt or equity? And do they generally invest in businesses the same size as yours?
Rond then go on to explain why you need to also establish whether the firm can provide follow-on capital later, if required, and verifying and satisfying yourself as to the sources of the firm’s investable funds. Given that private equity firms change a management fee for services provided, it would be judicious to also check their credentials and ability to deliver the expertise for which they are charging. Are they adding any other value? Do they see eye-to-eye with you on strategic plans for the business?
Related:
Selling to Private Equity firms is not for everyone
Here’s how a private equity purchase plays out
Should you sell to private equity or a trade buyer?
What private equity firms do is often misunderstood
