Types of Buyers: Who Should Buy Your Company? (EP.11)
Sep 23, 2019
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Brent Beshore and Emily Holdman discuss the various types of buyers in the market for private businesses, including private equity firms, fundless sponsors, search funds, family offices, and strategics. They explore their incentives for buying, financing structures, operational preferences, and practicalities of working with each type.
Different types of buyers in the private business market include private equity firms, fundless sponsors, search funds, family offices, and strategics.
Private equity firms typically operate on a strict timeline and have specific investment strategies involving new leadership, automation, expansion, and cost reduction.
Understanding the background, capabilities, and funding sources of fundless sponsors is crucial for assessing their ability to complete a transaction.
Deep dives
Different types of buyers in the private business market
In this podcast episode, the speaker discusses the different types of buyers in the private business market. Private equity firms, fundless sponsors, search funds, family offices, and strategics are all mentioned as different types of buyers. The speaker emphasizes that each type of buyer has differences in their investment approach, control, and post-close involvement. Understanding the different roles of each buyer type is important in determining which buyer would be the best fit for a specific company.
Private equity firms: Investment schedule and strategies
Private equity funds are described as firms that invest in pools of capital to make private investments. The speaker explains that most funds operate on a strict timeline, typically spending the first three years making investments, the next three years holding the investments, and the following few years selling the investments. The investment strategies of private equity firms often involve installing new leadership, automating processes, expanding product lines, and reducing costs. The speaker advises that companies considering private equity groups should review the investment criteria of the firms before reaching out.
Funless sponsors: Deal-by-deal funding
Funless sponsors, also known as independent sponsors, are discussed as buyers who operate similarly to traditional private equity groups but without dedicated capital. They source capital on a deal-by-deal basis, which can make their deals less likely to close compared to private equity funds. The speaker emphasizes the importance of understanding the background and capabilities of funless sponsors to assess their ability to complete a transaction. Potential challenges include securing funding and aligning expectations with investors. Sellers are advised to perform due diligence and ensure the sponsor's ability to complete the transaction before proceeding.
Search funds: Funded by MBA graduates
Search funds are explained as capital raised by recent MBA graduates to search for a business to buy and operate. The speaker discusses how search funds provide enough capital for two years of searching, and if successful in finding a company, the investors have priority to fund the transaction. Searchers usually assume the CEO role post-close. The speaker advises sellers to assess the searcher's background, experience, intentions, and future plans to determine if they are qualified to lead the company. Sellers with a compelling case may command a higher valuation from search funds focused on specific industries.
Family offices: Investing their own money
Family offices are described as organizations built to serve the interests of wealthy families. They directly invest their own money in companies and have varying structures, sizes, and investment strategies. The speaker explains that family offices can invest directly to be more flexible with acceptable investments and holding periods. The ideal company to be owned by a family office depends on the family office profile, ranging from passive to active involvement. Evaluation and post-close activities, such as retaining employees and brand retention, may vary when dealing with family offices. Sellers are advised to assess fit over size when considering strategic buyers.
Private equity firms, fundless sponsors, search funds, family offices, strategics… the buyers of private businesses vary widely in the way they acquire, operate, and finance their purchases. In this episode, we go deep on each type of potential purchaser and look at their incentives for buying, typical financing structures, operational preferences, and the practicalities of working with each type day to day.
Private Equity Firms
Discussion with Brent Beshore and Emily Holdman starts @ 6:39
Fundless Sponsors
Discussion with Brent Beshore and Emily Holdman starts @ 15:02
Search Funds
Discussion with Brent Beshore and Emily Holdman starts @ 23:11
Family Offices
Discussion with Brent Beshore and Emily Holdman starts @ 29:43
Strategics
Discussion with Brent Beshore and Emily Holdman starts @ 37:06
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