How to Sell Your Business to a Private Equity Company

Category: Analysis

In today’s world, selling a business is as important as starting one. A lot of times, a business doesn’t do as well as the businessmen think it will, and the best option businessmen have is to sell it. If you are looking to sell your business, you might be looking for a straight buy out. But, what most people don’t understand is that there is equal money in equity firms.

These firms can be a very good exit option for someone looking for a way out. Private Equity companies are firms that have raised enough capital from investors and created funds to buy a business. Here are the following things that you can expect when selling your business to a private equity company.

Stage 1: Approach

Selling to a Private Equity company is a very good exit strategy if you want to get substantial liquidity out of your business and still want the operational control of your business. After a few meetings, the equity company will ask for upfront information about the financial and operational situation of your business. If your business dealings impress the equity company, they will make the first offer by sending you a letter of intent (LOI). This is an initial offer which will be based on the value of your company. This offer is based on the investment value and can always be higher. At this stage, it is best if you know to value your own company. By browsing over to the linked article, you can find some helpful resource to assist you with the job.

Stage 2: Due Diligence

If you agree to the terms in the letter of intent (LOI), the private equity company will use its hired guns to do its due diligence. They will make sure that they review each aspect of your business. You will have to present them with all the records of your business dealing, profits and loss sheet, and your monthly expenditures. These reviewers will come to your business like hounds and try to use anything negative to negotiate a better price for your business. This step will be very complex, and you will have to stay one step ahead of them. Make sure that you don’t get bogged down by documents and navigate through this step will ease and comfort.

Stage 3: Married Stage

The previous step can last between 60 days to 6 months, and once they have completed their due diligence, the deal will be closed. As you have chosen a private equity company as your investor, you still have a say in the operational structure of your business. When you get the cash in your bank account, you will get 70% of it as you still own 30% of your business. So, when the deal is done, they will offer you an employment contract that will tie you to the company. Moreover, they will also put a lot of responsibilities on your shoulder. If you didn’t meet their expectations, it would mean in the loss of your company and a total change of your company culture.

Stage 4: Divorce

No matter how flexible you become, these companies have a way of making sure that they gain total control. So, after years of meetings, interrogation, being treated like a kid, and being told how to run your own company, you will want out. Selling to a private equity firm can be a very great option for you, especially in the United States, where they can offer a lot of liquidity. They can offer you a lot of money and a reasonable price or your business. But what most people don’t understand is how these things work, and they get attracted to shiny things.

The Bottom Line

The advent of private equity firms has been a great help for business owners who fail to become what they hope to. However, it is must that you understand that selling to equity companies is a two-way road. For businessmen who still believe in their business, want it to progress, and still want to play a part in the organizational structure, selling out to these companies is the best option to go for.

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