Selling your business: How to benefit from private equity’s middle-market shopping spree

I have been advising middle-market companies on issues such as succession planning and M&A for more than 40 years. During this time, I’ve seen a tidal wave of change when it comes to options for selling a business. Where owners were once restricted to selling to a family member, the management team or possibly a competitor, today the choices are far broader — and as witnessed by the number of people slated to attend this year’s Aspire conference May 18 in Cleveland, one of those options is private equity.

More and more, PE firms awash in capital and with access to relatively easy credit are searching for growth opportunities among middle market companies. In fact, it is the middle market that is driving PE today. With close to $1 trillion in “dry powder,” these firms are competing for the best deals and are willing to offer attractive terms to sellers.

If you are thinking about selling your company, here are some reasons that a PE buyer might be the right choice for you:

  • PE firms have an abundant supply of capital. With their deep pockets, they are well positioned to invest in the long-term growth of the companies they buy.
  • PE firms excel at operations. Many of them have sophisticated networks of both internal and external advisers. This means they are prepared to jump in and shore up any area of the business that might require support.
  • You may be able to retain an ownership interest in your company. Perhaps you aren’t ready to leave your business. PE firms frequently buy a majority stake in a middle-market business, while the owners retain a minority percentage. In fact, many firms prefer to do deals where the owners maintain some skin in the game. Because PE firms are especially focused on growing and improving the businesses they purchase, when they eventually exit, your stake may well be worth considerably more than on the date of the original deal.
  • Selling to a PE firm may be the best bet for your employees. Often, when owners sell to a strategic buyer or competitor, cuts in personnel may ensue due to redundancies between the two companies. PE firms, on the other hand, are more likely to continue with the current employees and existing management team.
  • You may have the opportunity to join a larger ecosystem. Many middle-market PE firms specialize in a particular industry, building a portfolio of “platform companies” that together offer synergies and economies of scale. If your company fits within a buyer’s platform as an “add-on” purchase, you will have access to the platform’s resources, giving you a significant opportunity to increase the value of your business.

If you are considering a PE buyer, it’s important to do your research. Every buyer brings something different to the table — some are bigger, some have more capital, some are better operationally and others may have deep expertise in a particular industry. What’s more, each has different strategies, motivations and priorities. Working with a professional adviser can help you vet potential buyers and determine which ones are the best fit. Given the fierce competition among PE firms to land the best deals, this is an especially attractive time to go the private equity route.

Mark Goldfarb has more than 40 years of experience serving both business and individual clients, including advising and assisting them with their financial and operational endeavors. He previously served as the co-founder and senior managing director of SS&G, which joined BDO in January 2015.