Is Private Equity Right for Your Business?

We've talked about private equity (PE) funding before and have likened a relationship with a PE house to an affair rather than a marriage. In essence, PE firms rarely are in it for the long term, they’re there to extract value quickly, usually exiting within 4-6 years.

Since PE houses are investing on behalf of pension funds and institutional investors, expect for every statement, document, assumption, and financial model to be picked apart and scrutinised. So while signing an NDA is often a cause for celebration as the foot is in the door, that is just what it is, the first tiny step in what can be a long and demanding process.

We’ve been through this many times, guiding clients and at times quite literally holding their hands, through what can be an incredibly intense and tough vetting process. So, based on experience, we’ve prepared a few pointers on things to keep in mind when talking to PE houses:

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Encompassing financial diligence, commercial diligence, legal and regulatory diligence, cultural diligence, and customer and supplier chain diligence and more…capital will not be deployed until the risk is mitigated.

They’re looking for stable, recurring revenues, clear growth potential, and opportunities to realise greater efficiencies and margins.

The vetting process should be two-way, so both parties (seller and PE house) understand the nature of the relationship, have an agreed vision and direction of travel for the business for it to work.

If you hit your financial targets, PE backing is hugely rewarding. If not, be prepared for swift and decisive action.

Engaging with a PE house isn’t for the faint-hearted. You need an experienced negotiator in your corner who understands the nuances and ensures you don’t end up exposed. As always we’re here to help so do reach out if you need a sounding board and off the clock advice.