The top qualities private equity groups seek in management teams

When a business owner contemplates the sale of his or her business, they may consider selling to one of their competitors or another strategic buyer, to their employees through an employee buyout, or to a private equity group. While negotiating with a third party requires selling shareholders to address various questions, the process is made infinitely easier, and more profitable, with a trusted and skilled management team in place.

Once an owner leaves, the management team will likely serve as the backbone to decision making while the new private equity owners assess additional needs of the business. As most investors prefer a cohesive and competent management unit to be in place before putting their dollars in, most offers come with high expectations of an existing management team.

"The importance of an experienced and skilled management team cannot be underscored enough."

A strong management team starts with early evaluation
The needs of a management team part of a private equity sale may differ from what was needed in earlier stages of the business cycle. When the prospect of private equity is first raised, selling owners should take stock of their management team, paying particular attention to their mindsets and leadership attributes, as these will be invaluable to the private equity sale process.

When evaluating the management team of a prospective business, private equity investors will almost certainly look for a cohesive collection of managers. Why? Because change can be tumultuous, especially at the top, and the employees will seek out a steadying and assertive presence from the management team post-sale.

Therefore, it's important for owners to mentor and develop the right team members into management roles who can communicate with staff, guide them and other stakeholders through the process, provide detail and answers when needed, and ultimately shepherd the business through the purchase. Experience with private equity transactions is another great management trait, though not necessarily a requirement.

Equity investors are a partner, too
Private investments firms will undoubtedly have certain demands of existing management teams, but it's a two-way street, and the management team should make the same effort to evaluate how the objectives and styles of the equity firm mesh with their own.

The cultures of both parties will play large roles in the future operation of the business under private equity, and to confirm that their objectives and expectations are aligned, the management team of the business should press for access and open discussion with private equity professionals.

The importance of an experienced and skilled management team cannot be underscored enough. Not only are such leaders influential to the feasibility of a sale to private equity, they stand to play a pivotal role as the seas of the business shift to ensure that employees are informed and supportive. Creating such a management team clearly takes effort on the part of the selling shareholders, but taking advance action and aligning the management team will help streamline the process.