Private Equity 101: What To Do When Private Equity Starts Calling

Private Equity 101: What To Do When Private Equity Starts Calling

You’ve been building your business for decades, years or maybe just months.

When your phone rings, you answer it because it might be a customer, a key supplier or an operational issue that requires your attention. One day you answer the phone and it’s “Jamie” – a Vice-President from EveryFund Partners who is “very impressed” with what you’ve built and is asking if you have sufficient capital to grow, or if you have considered selling your business?

This is a situation faced by entrepreneurs, founders and CEOs more frequently as more and more money is being poured into private equity (PE) funds, and those dollars need a place to go. As a result, PE firms have drastically increased their pro-active outreach and cold-calling to businesses they perceive to fit with their investments goals. Here’s how you can make that work for you when you get that call:

  1. Not a Great Time, Let’s Talk This Week Or Next Week – Give yourself some time to have the conversation when convenient for you. Puts you in the driver’s seat to start, and Jamie will be happy to have a scheduled time to talk.

 

  1. A Little Online Research – A quick google search will get you to EveryFund’s home page. Things to look for are:
  • Deal size – Does your company fit well within their range (revenue and/or EBITDA) or are you on the small or big size for them?
  • Industry – Would your company be their first foray into this industry, or are they well-versed and experienced in your sector
  • Investment Type – Are EveryFund’s other investments (typically listed in a section called “Portfolio” or “Investments”) for growth capital, majority buyouts, or 100% buyouts

 

  1. Know Thyself – A few quick pieces of information will be good to have on hand for your upcoming conversation. Other than the things you would already know (year started, number of employees, etc.) it would be good to have/know the following:
  • Revenue and EBITDA for the last 12 months and most recent complete calendar year
  • Operating metrics such as units shipped, active customer accounts, completed orders, etc.
  • Any positive metrics (growth, margin increases, new product lines, etc) to increase interest in your company
  1. Listen – At this stage there is no pressure, no mistake to be made, and you have something that they want. If you end up moving forward with an investor or buyer, this will be the first of dozens of conversations, so no need to rush anything. Jamie will tell you about the firm or fund that is interested in your company, how recent investment and activity make this a great time to consider different options, and why it makes sense to have a follow-up discussion with another member of the team.

 

  1. Ask Questions – In addition to questions/observations from your online research, this is the time to ask Jamie questions such as:
  • How many recent deals have you completed in this area?
  • As one of many capital sources or exit options out there, how are you different or better?
  • What would other sellers say about EveryFund, the process and working with them?
  • Tell me what you know about my company and why you called me?
  • What are recent multiples or valuations you are seeing?

 

  1. Seek Professional Help – If your wheels are turning and you’re thinking about options, it is important to begin discussions with members of your potential “deal team.” It’s not yet the time to bring in any big guns, but it is the time for initial discussions and seeing where there is a personality fit along with the professional credentials and appropriate experience.

 

  • Legal – It’s important to understand how your current legal structure (LLC, S-Corp, C-Corp etc) impacts a transaction, what is required of your investors, and how anything else might impact the transaction process. Your current attorney can answer most of these initial questions, and if you continue forward you should most likely enlist the services of an experienced transaction or M&A attorney.

 

  • Financial – If your operational or financial reporting is not at a point where you are excited and proud to show it to a third party, it’s the right time to bring on a temporary resource for a deep dive, a through analysis and to make everything look tidy. This could be a project-based CFO, or a service offered by your CPA.

 

  • Transactional – A CPA will help you understand the tax aspects of a potential transaction. A Wealth Manager will work to formulate a plan for any proceeds that you might receive as a result of a transaction to meet your financial goals. Lastly, an Investment Banker will make sure that you receive a market-based price for the value you have created, represent you in very detailed discussions and processes, and finally will make sure that you don’t bring a knife to a gunfight. The ideal investment banker will create an auction scenario where multiple investors/buyers are bidding for your company, resulting in a higher price for what you are selling.

That first phone call from Jamie can be the beginning of an extremely rewarding and complicated process, one that requires the right team and tools in order to maximize the positive impact to you, your company and your family.

Our team at Objective Capital Partners has taken hundreds of entrepreneurs, founders and CEOs successfully through this process, and welcome the opportunity to serve as a resource for you in any way that we can. If you would like to discuss, call us at (858) 208-3442 or email us at info@objectivecp.com.

About the Author:

Ravin Bisla

Director, Healthcare

20+ Years of Experience

ravin.bisla@objectivecp.com

Disclosure

Objective Capital Partners is a leading investment banking advisory firm whose Principals have collectively engaged in more than 500 successful transactions serving the transaction needs of growth stage and mid-size companies. The executive team has a unique combination of investment banking, private equity, and business ownership experience that enables Objective Capital Partners to provide large enterprise caliber investment banking services to companies with annual revenues up to $250MM. Services include sale transactions, partnering/ licensing, equity and debt capital raises, valuation and comprehensive advisory services. The firm uses a proprietary process to work to achieve maximum company valuation, premium pricing, and high client satisfaction rates post-sale. The firm’s industry expertise is focused on 5 verticals including healthcare, life sciences, business services, technology, and consumer products. Additional information on Objective Capital Partners is available at www.objectivecp.com.

This article is provided for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Objective Capital Partners and BA Securities are separate and unaffiliated entities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC makes no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person.

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