Broker Check
Exit Strategies: Selling to a Private Equity Firm

Exit Strategies: Selling to a Private Equity Firm

December 17, 2021

Selling to a private equity firm is yet another option when determining how to sell your business. Unlike a strategic buyer (as discussed a few weeks ago), private equity firms raise capital from institutions or high-net-worth individuals to invest in the private markets. The PE firm often purchases a company (or at least a control position) via an auction-style sale in which several competitors submit bids to buy the private business. The business is typically resold within a timeframe of 3-10 years to turn a profit for their investors. 

Potential advantages in selling to a private equity firm:

  • New Funding: A cash infusion could help purchase/develop new technologies, make capital expenditures, or make acquisitions to facilitate growth.
  • Business partner: Flexibility in choosing the investor that the founder will partner with and who will likely own a majority of the business going forward.
  • Expert Knowledge: Typically, the private equity firm will buy a company in which they have industry expertise and possess the knowledge on how to increase the value in the company to sell again at a profit. They may also bring in experienced board members and facilitate introductions to strategic partners.
  • Maintain ownership: Although most PE firms want to acquire a controlling interest in the business, they typically would want the sellers/management team to retain a meaningful ownership position. 

Potential disadvantages in selling to a private equity firm:

  • Loss of control and dilution: The PE firm will usually take a controlling ownership position and have the right to make decisions regarding strategic vision and operations.
  • Valuation: The PE firm is looking to provide a fair value for the business but would like to purchase at a price that would lead to the most profit. This valuation might be lower than offered by a strategic buyer who may be able to use future synergies to justify a higher price.

We recommend having a team to discuss all exit strategy options and the subsequent plan for post-sale life.

Happy Holidays,

Matt and Andrew