Business buyers come in all shapes and sizes. A private equity (PE) group may be a better fit than an individual, family office, management team or family members, depending on the seller’s key goals.
Generally, PEs are well capitalized and often can pay a higher multiple than a non-PE financial buyer. For sellers who seek to maximize purchase price above all other goals, then, a sale to PE may sound very enticing. And for those sellers with the patience and experienced team to navigate a sale to PE, a sale to PE can turn out to be very profitable and successful.
Of course, the higher multiples PE buyers may be able to pay often come at a cost. For instance, PE buyers tend to be very rigid regarding deal structure, deal process, and due diligence. For a small seller with limited staff, the typical PE due diligence process is daunting at best and crushing at worst. The rigorous PE due diligence process can result in deal fatigue and higher transaction costs to sellers.
Another cost relates to the seller’s legacy. The typical PE buyer is looking to buy a business, increase the value over a relatively short period of time (5-7 years), and then exit the company through an IPO, a sale to a larger PE group, or some other exit method. This means that PE groups are rarely a safe bet for sellers looking to ensure long-term work for employees, keeping the business in its present location on a long-term basis, or even keeping the business running.
If your company is large enough to attract the attention of PE groups, your goal is to maximize purchase price when you sell your company, and you have the stomach and the professional resources to weather the PE due diligence process, a sale to a PE buyer may be right for you. Otherwise, you may be better off looking at other types of buyers.More Publications