Generic PE product lines

Making the deal quietly
By Jeremy A Samuel
September 10, 2007 11:39am

OWNERS who are no longer active in their businesses may be looking to sell, but don't want rivals to know. Private equity may be the best way to go about it.

Private equity can help owners sell to existing management teams through a management buyout (MBO) or to a new CEO through a management buy-in (MBI).

The new capital structure can then help those businesses grow organically or by acquisition.

So what do private equity firms look for?

Private equity firms' investment criteria vary. But most look for quality management, established industries, strong business cash flows, growth potential, reasonable pricing expectations and longer term exit prospects.

Good private equity firms will also select companies where both they and management agree the firm can provide strategic counsel and financial assistance. This is difficult to measure and often comes down to the fit between the personalities.

So how does a business owner find the right private equity partner?

This is an important decision - the business is choosing a partner that will be very influential over future corporate outcomes.

Criteria which are used for choosing appropriate firms often include:

Credibility, integrity and ability to maintain confidentiality;
Ability to structure and fund the transaction;
Transparent and speedy investment approval process; and
Complimentary fit, including ability to add strategic and financial value.

Understanding the investment criteria of each private equity firm can make this match making exercise more efficient. Credible firms generally make their market focus reasonably clear.

Some venture capital firms focus their efforts only on start-ups or on ventures in their early stage. Others focus solely on very large companies.

There are differences between private equity firms but there are probably more similarities among them. The basic investment philosophy of backing proven management teams in businesses with strong potential is a repetitive theme.