Selling to a private equity group

The winds have shifted to a seller-friendly market and prospective sellers have several options available for getting the best price possible. However, in certain scenarios you might have limited choices for selling your business. Some owners have no family members to whom they can bequeath their company. Other businesses have multiple shareholders with varying investment horizons and one or more may wish to exit before the rest. When situations like these arise, owners need to look at other options for selling their business.

An owner may even find him or herself with a company that needs additional capital to maintain a competitive edge or scale up production. Private equity groups generally have easier access to capital than companies. These firms also tend to have deep industry expertise and a large network of associates.

"Funds range from hundreds of thousands to billions of dollars."

How it works
A private equity group fundraises for a particular fund. Depending on the firm, this fund can range from hundreds of thousands of dollars to billions of dollars. The firm will then use a combination of debt and equity to invest in a company with the intention of gaining a return on the initial investment. 

Since this process involves careful consideration of the value and assets involved in the purchase, owners need to know the intrinsic value of the company to ensure they receive the best price. After identifying and qualifying interested buyers, business owners can sell the majority of their company, or sell a minority of the company and use the capital infusion to expand their operations to reach a larger market.

Maintaining strong management teams
Private equity funds often invest in underperforming companies and then restructure the managerial, financial and operational processes to improve the business and increase profitability.

Most private equity firms will keep the existing management team in place to oversee the day-to-day operations of the company. In some instances, however, the private equity firm will bring in their own management team to take over operations. Carefully vet the private equity fund to ensure they share your company's culture and business goals. A lack of alignment will create discord between new and existing company leaders and may ultimately inhibit your business' ongoing success. 

Depending on transaction terms, selling a business to a private equity fund can allow you take some chips off the table while still enjoying the success of any future growth.