Private Equity has offered to buy my business, what should I do?
You own a successful privately held business, and in today’s world can expect to receive a call from a private equity firm telling you that they want to buy your business. The price they offer seems reasonable or even good. What should you do? What questions should you ask?
Step 1 – Stop! Make a plan.
Don’t commit to anything. Gather as much information about the private equity firm as possible. Some questions for you to ask:
• How did you arrive at this purchase price?
• Can you provide me with market data on why it is a fair price?
• What other deals in the industry have you done?
• Why are you targeting this industry?
• Why my company?
• Do you have any references of people I can call whose business you purchased?
Most importantly, don’t provide any information to them yet.
2. What’s your transition plan?
Your personal and professional goals should drive any process.
• Are you ready to walk off into the sunset and sell your entire equity stake?
• Looking to take your business to the next level?
In either event, it is never too early to start having those important conversations with your family, friends and advisors.
3. Build your team
The simplest way to set yourself up for success is to assemble a strong team of experienced advisors who understand your goals at an early stage in the process.
• Do you have a financial plan?
• Make sure your team understand your personal and professional objectives?
• Select a team with the experience to advise you on the transition process. Do they know the financial, and tax implications?
• Does your legal team regularly represents or sells companies to private equity firms?
• Do you need an investment banker? Why should you pay a percentage of sale price to an investment banker? It is important to remember that an offer is not cash in your pocket and an experienced investment banker can create a process or the appearance of a process, which can be leveraged to close your deal.
There is a lot to consider, and at CLA we work to demystify the process.
Craig Arends is a principal at CLA and is the managing principal of CLA's private equity practice. Craig brings a concentration of experience in providing accounting and transaction structuring advice for leveraged recapitalizations, purchase accounting and SEC reporting, assessing quality of earnings, and GAAP accounting. He has far-reaching experience with critiquing financial models and reviewing target companies' financial performance to identify cost reductions and/or operating efficiencies Craig has more than 30 years of experience in public accounting serving public companies, private equity groups, and companies, including a term as principal in charge of a Big Four Capital Markets Group in Moscow, Russia. He has led financial accounting due diligence projects for private equity investor groups and venture capital funds, primarily in the technology, communications, and manufacturing industries, as well as assisting with Foreign Corrupt Practice Act matters ranging from investigation of payments made, validation of compliance with corporate policies, and review of proposed transactions to ensure compliance. When not working, Craig enjoys watching any sports, but his most favorite are baseball, football and soccer.
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