Most entrepreneurs only have one business. Just like surgery on your brain or your eyes, you would only entrust a unique asset to a specialist. When it comes time to find an investment partner to continue growing the company, many owners forget that specialty matters in investing too.
When it becomes time to sell your business and/or take on a growth equity partner, find one with a long history of doing deals in your industry or a great depth of experience in building a business with similar dynamics and characteristics. Partnering with a specialized investor provides many advantages, including:
■ Faster results. You don’t want to waste time teaching a private equity firm your industry. You want to be able to execute growth initiatives from the start of the investment period.
■ Better future. Most owners retain a stake of ownership after a private equity investment so they have a strong financial interest in how the business performs after a sale. Even those that sell outright want their loyal employees, customers and suppliers to be treated well post-closing.
■ Better process. A specialist can hit the ground running and evaluate your company quickly. Choosing a handful of top-tier specialist firms can create a competitive process delivering fair market value without overexposing the business plans or over sharing confidential information.
■ More assured closing. The odds of closing are much higher with a specialized firm as they are less likely to significantly change their valuation down the road when they finally begin to understand your industry and business model.
If you’re convinced that a specialist investor is the way to go, here are a few things to expect and demand during the sales process:
■ Nearly all private equity investors call themselves “value-added investors.” Find out how they added value to each company similar to yours.
■ Do all you can to understand the depth of the investment firm’s experience. Ask for references in your industry niche and focus on investments that are fully exited because those management teams are usually more candid. When talking to references, ask what obstacles they faced and what role the investor played in helping to overcome them. Phrase your questions to provoke detailed answers and always seek specifics.
■ Find out exactly who from the firm will sit on the board of your company and be sure to check references on those professionals.
■ Before finalizing a deal, ask to see the private equity firm’s detailed track record of investments in your industry. If the firm refuses (even if you sign a nondisclosure agreement), it may not be the right partner for you.
Working with a specialized firm when selling your business is a great way to speed up the sales process and position your company for a better future.
Jeremy Holland is a principal, origination team, for The Riverside Co., a global private equity team serving the smaller end of the middle market. Go to www.riversidecompany.com
