How to turn a call from a private equity group into a win-win
Whether selling your company is part of your short-term plans, long-term plans or not even on your radar, getting your first call from a private equity firm is pretty exciting. Afterall, you’ve invested all your energy into building a successful and profitable business, and now someone with deep pockets has taken notice and is ACTUALLY interested in your company. But why are they interested and what does this mean for you? In this post we will share some things you should know to help you turn a call from private equity into a win-win for you and your business.
Why Private Equity Is Calling You?
Somehow your company reached some sort of milestone — you made it onto a big VAR list or made a list like the Inc. 5000, and now the emails and phone calls from Private Equity Groups (PEG) are starting to come in. COVID or not, private equity deals need to continue to happen because bringing a stream of interesting prospects into the firm is the lifeblood of every PEG. So what are their reasons for calling a business like yours?
Here are 4 common reasons a PE firm is calling you:
- They want to negotiate directly with you. When PEs reach out directly, they are trying to avoid any competition that might happen if you decide to engage a broker, so they can hope to purchase your company at a discount.
- If you engage a broker, they will want to be engaged in the process early so they can build a rapport and be considered when the time comes for you to look at buyers.
- They want to develop a personal relationship so that everyone else is compared to them and they can set the bar for a number of items, suggesting all along that they are the “right fit” and firm to partner with. This is called anchoring. Humans are affected by anchors, the first offer or first impression usually sets the tone for the rest of the conversations.
- They may be gathering information for another deal that is similar in size, industry and technology. Or just generally conducting due-diligence on your market space.
Why a Call from Private Equity Is a Win for Your Company
Even if you don’t want to sell to a private equity group, a call from them is a win for your business. Whether you plan on selling soon or in five years, taking these calls will help you better prepare and sell for millions, even if you are set on only selling to a strategic investor.
Here are some of the ways a PEG call is a win for you:
- You will learn something with every call. Never stop learning, so that means continue having these calls but keep them at a minimum and don’t let them get destructive – meaning don’t let someone (a teammate) overhear the conversation and get the wrong idea.
- They are a great source of metrics. PEG’s live and die by the numbers, so if you are looking for benchmarks, these are the guys to get it from assuming they do a number of deals in your industry.
- Once you do begin the process of selling your company, even if it is to a Strategic buyer, you already have identified, or know of, it never hurts to have another player in the game. You just never know where an offer will land, and you want to create a competitive situation. Competitive situations ALWAYS leads to better outcomes for the seller. Plus, PEG’s keep the ball moving forward. Meaning, if your ideal strategic buyer is lagging in the process, they will be forced to keep the pace of the PEG if they want to stay in the game.
- And finally, they may have some good contacts for attorney’s, transaction CPA’s, firms who can prepare a Quality of Earnings Report, or provide referrals to people who might be able to fill open management roles within your organization.
How to Tell If Your Business is Right for a Private Equity Group
Private Equity has historically NOT looked at anything less than $5M in
revenue and $1M in EBITDA, but those views on size and revenue have
changed and PEG’s are even looking at companies half that size.
Despite the economic slowdown caused by the current pandemic,
Private Equity is sitting on anywhere from $1.5 – $2.5T (yes trillion)
dollars of “dry powder” (money they need to invest) in the next few
years, so while many strategic buyers are conserving cash at the
moment, PE’s are charging full-steam ahead.
Would you like the expanded e-book version of this for my five tips on
how to handle the Private Equity call? Download the full version