Selling to private equity providers
All answers are for general guidance only. Each case must be handled on individual facts.
Q: What's involved in selling to a private equity provider or private investor?
Many good businesses are not necessarily attractive private equity investments, so firstly you need to ask:
• Is there a backable management team?
• Is there an exit route for the investor in three to five years?
• the business have a sustainable position in an attractive market?
• Is the business profitable, cash generative, and able to service a new funding structure?
• Is there a clear growth strategy?
Investors have differing preferences on industry sector, deal size, growth strategy, and location. A good corporate finance advisor will know which ones would be most interested in the business and can make introductions to those that have the best reputation for deal delivery.
Securing a debt package is critical in most of these deals. It is often worth testing the debt market before spending significant time marketing the business to investors.
Which sales strategy to adopt is another area where advice from an experienced professional can be invaluable:
• Institutional buy-out: vendor retains control and the business is marketed to investors in a similar way to a trade sale. Trade buyers may also be approached so that a twin track sales process is run.
• Management buy-out: vendor and management agree a deal in principle and the managers are given a period of time to secure funding and complete the deal.
• Management buy-in: sourcing an external executive team (that might join with incumbent managers) with the credibility to raise funding.
Vendors are often amazed at the amount of due diligence that financial investors undertake. This needs to be carefully planned and managed so as not to disrupt the business or provide opportunities for “price chipping”.
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