Matt Coyne offers expert advice on selling middle-market companies to PE firms. Topics include what PE firms look for, benefits and concerns of selling to a PE firm, tips on working with them, typical financial structures, and expectations post-sale. The podcast covers nuances between platform and add-on acquisitions, dynamics between strategic and financial buyers, debunking misconceptions about PE firms, role of professional management in PE investments, and the importance of transparency in post-sale communication.
Private equity firms offer growth opportunities and prefer active ownership participation.
Deal structures involve equity investments from both buyer and seller, with post-acquisition involvement impacting returns.
Building a strong management team and preparing for growth are crucial for maximizing value in a PE partnership.
Deep dives
Basics of Selling to a Private Equity Firm
Selling to a private equity firm is crucial for business owners making over half a million dollars a year, with two types of acquisitions: platform and add-on. Selling to a platform requires earnings of over 3 million, while add-ons involve businesses making down to half a million. Private equity groups aim to grow bought businesses and look for strategic fits or add-on acquisitions. Around 75% of deals are sold to PE firms due to their active buying nature and focus on growth.
Role and Strategies of Private Equity Firms
PE firms aim to buy companies, enhance their value, then sell for profit to benefit investors. They focus on scaling businesses and have significant resources and expertise to do so effectively. Deal structures typically involve a mix of equity investment from the buyer and seller, with the seller holding a stake in the company post-acquisition. The owner's involvement post-sale varies but can offer financial security and potential for increased returns through reinvestment incentives.
Success Factors and Considerations in Engaging with Private Equity
Successful engagement with private equity involves humility and openness to growth potential. Private equity firms are looking for scalable businesses and prefer active ownership participation. Owners selling to PE must understand the post-sale scenario, with future involvement, transition periods, and equity holdings impacting potential returns. Building a strong management team and preparing for growth are key prerequisites for maximizing value in a private equity partnership, ensuring a successful business sale and eventual exit strategy.
The Importance of Building a Strong Management Team in Private Equity Firms
Private equity firms emphasize the critical role of a skilled management team in maximizing business value. By assembling a proficient team, owners can expedite their retirement process as the emphasis shifts towards professional company operation. Attributes such as documented processes, non-compete agreements, and the ability to detach the business from the owner are key factors that make a business attractive to private equity groups.
Transitioning to Retirement through Partnership with Private Equity Firms
Partnering with private equity firms offers owners a unique opportunity to step back, reduce personal risk, and leverage professional expertise to scale their businesses. Selling to a PE firm allows owners to take a 'moonshot' by unlocking growth potential with reduced personal risk. The transition involves owners embracing the idea of playing with 'house money,' working as employees, and eventually transitioning into retirement as the business thrives under new management.
Private equity (PE) firms are the most active buyers in the market, so sellers need to understand how they operate. Matt Coyne offers expert advice on how to make selling your middle-market company to a PE firm the best option. He discusses what PE firms look for in a company, the benefits and concerns when considering selling to a PE firm, tips on how to work with them, how the finances are typically structured, and what an owner can expect once they sell.
The Basics of PE Firms: Learn about private equity, who the investors are, and the 10-year plan once they’ve bought your company.
What PE Firms Look For: PE firms are often the best buyers for hard-to-sell companies, whether they are making a platform acquisition or an add-on acquisition.
Considerations for Owners: Sellers need to consider how long they are willing to stay on after the sale and how they will be compensated when selling to a PE firm.
Benefits and Challenges: PE firms are very good at growing companies, but they won’t buy 100% of your business.