Selling Your Business to Private Equity with Confidence
By: Brady Paschke
At CLA, we have worked with many business owners who have successfully sold their companies to private equity firms, and we are here to help guide you through the process. If you are considering selling your privately held business to a private equity fund, understanding what these investors value most will give you the greatest opportunity to maximize your outcome. Here are several steps you can take to position your company for a successful transaction.
- Getting your financials in order:
- Start by organizing your financial statements, including income statements, balance sheets, and cash flow statements. Ensure they are accurate, up-to-date, and prepared according to generally accepted accounting principles (GAAP).
- Consider working with an accountant or financial advisor to review your financials and make any necessary adjustments or improvements.
- Prepare a comprehensive financial forecast that showcases your projected revenues, expenses, and cash flow for the next few years. This forecast should be based on realistic assumptions and consider potential growth opportunities and challenges.
- Create KPI dashboard / strategic scorecard that measures the most important metrics for your company’s success.
- Building a strong management team:
- Assess your current management team and identify any gaps in skills or experience. Determine whether you need to hire additional personnel or provide training to existing employees.
- Clearly define roles and responsibilities within your management team to ensure a smooth transition after the sale. Document processes and procedures to facilitate knowledge transfer to new owners or executives.
- Highlight the strengths and accomplishments of your management team in your marketing materials to demonstrate their capabilities to potential buyers.
- Understanding your market and industry:
- Conduct market research and customer interviews to gain a deep understanding of your target market, customer segments, and additional customer needs. Identify key industry trends and factors that could impact your business.
- Analyze your competition to assess their strengths, weaknesses, and market positioning. Differentiate your business by emphasizing unique selling propositions or competitive advantages.
- Be prepared to articulate to potential buyers how your business fits within the broader market landscape and why it presents an attractive investment opportunity.
- Developing a clear growth strategy:
- Determine how your business can capitalize on those identified opportunities in your market and with your customers. Consider strategies such as expanding into new markets, introducing new products or services, or leveraging technological advancements.
- Outline a detailed growth plan that includes specific initiatives, timelines, and resource requirements. This plan should be compelling and demonstrate the potential for substantial returns on investment.
- Working with an experienced investment banker:
- Research and select a reputable investment banker who is experienced in facilitating transactions with private equity firms. Look for an investment banker with a proven track record.
- The investment banker should assist you in preparing your business for sale, identifying potential buyers, and negotiating favorable terms. They can guide you through the due diligence process, ensuring all necessary documentation is in order.
- Collaborate closely with the investment banker, providing them with all the relevant information and insights about your business. Their expertise and network can significantly increase the likelihood of a successful transaction.
In summary, selling your business to a private equity fund can be a complex process, but by focusing on your financials, management team, growth strategy, market, and industry, and working with an experienced investment banker, you can position your business for a successful transaction.
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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