7 tips for partnering with a private equity firm

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Let’s face it: It can be exciting to get your first call from a private equity firm. It means someone with deep pockets is interested in your company. You have spent years building a profitable company and finally, someone is taking notice.

But why are they contacting you now? And how should you handle the call? Should you even take the call, or return it?

When private equity firms come knocking at your company’s door, it’s a significant moment that can potentially transform your business trajectory. However, the road to a successful acquisition is complex and requires careful consideration. If you are serious about exiting or partnering with a private equity firm, here are seven things you should do:

1. Assess your readiness. Before entertaining offers, assess whether your company is truly ready for a private equity buyout. Consider factors like financial performance, market position, growth potential and operational stability. A thorough evaluation will help you understand your company’s strengths and weaknesses, enabling you to negotiate from a position of strength and knowledge.

2. Assemble a strong mergers and acquisitions (M&A) team. Surround yourself with experienced professionals who specialize in private equity transactions. This ideally includes an industry-specific broker, lawyer and accounting firm. Their guidance is invaluable in navigating the intricate legal, financial and strategic aspects of the deal. Our firm, PCO Bookkeepers & M&A Specialists, has worked on many deals — some that are great and others that should be avoided. But the expertise our team has assembled has allowed our clients to always maximize value. That’s what a great team will do.

3. Define your objectives. Clearly state your goals for the transaction. Are you looking for a complete exit, partial liquidity, or a strategic partnership? Understanding your objectives will help you and your team filter private equity firms and focus on those whose goals align with yours.

4. Conduct due diligence. Thoroughly vet potential private equity buyers. Investigate their track records, investment philosophies, sector expertise, fund sizes and reputations. Talk to other entrepreneurs who have worked with them to gauge their experience. Remember, a private equity firm’s cultural fit with your company is crucial for a successful partnership.

5. Negotiate terms. The terms of the deal are critical. Focus on valuation, deal structure, management roles, employee retention and future growth plans. Be prepared to negotiate firmly, but fairly. Don’t be afraid to walk away if the terms are not favorable or if the private equity firm’s vision for your company doesn’t resonate with yours.

6. Plan for the transition. A private equity buyout can be disruptive. Plan for the transition by communicating openly with your employees, customers and suppliers. Address their concerns and ensure a smooth handover of responsibilities.

7. Prepare for growth. Private equity firms are focused on value creation. Be prepared for a rapid pace of change, increased scrutiny and ambitious growth targets. Embrace the challenge and leverage the private equity firm’s resources and expertise to accelerate your company’s growth trajectory.

A private equity buyout can be a transformative event for your company. By approaching the process with careful preparation, a strong team and a clear understanding of your objectives, you can maximize the benefits of the transaction and propel your business to new heights.