I recently attended a webinar hosted by PE Hub's Buyouts Insider, a leading publisher of M&A and venture capital information. It was an interesting insider’s view on sourcing transactions. “Insider” because the panel was comprised of folks from private equity firms (PE) and companies that specialize in sourcing deals for PE, and the webinar provided a unique view on how deal professionals go about locating companies to acquire/invest in.
I thought I would share a few key takeaways from the webinar with our readers since many of you are owners of businesses that may eventually become PE targets. If you want to listen to the entire webcast you can do so here.
These are the key pieces of information I gleaned that are pertinent to owners of privately held, middle-market companies:
Let’s take a look at these a bit closer. First, bullets one and two go hand in hand: It is amazing how many opportunities PE firms see annually. The folks on this webcast put it at 500 but I have talked to some PE sourcing professionals who put it much higher, more like 1,000 per year. Just think about that for second, if you are approaching PE firms without professional representation, how do you get your opportunity to stand out and be reviewed?
It is very tough, which leads us to bullet point number three: Your documents need to be not only accurate, they also have to be in a format and style that allows a private equity firm to quickly understand your company’s value proposition. You have about 15 seconds to do this in your one-page confidential business profile. If you are unable to, you will get lost in all the noise. Hence the need to produce docs that are in a format they want to see them in.
For this reason, bullet point four is key: M&A advisory firms like Generational Equity provide two key functions: They prepare great documentation for buyers to review AND they ensure that their clients are truly “sellers.” How do they do these things?
Well, experience has taught us what PE firms want to see and how they want to see it. But just as importantly we require an upfront commitment fee for our services (this eliminates the non-sellers) and we conduct a full business evaluation on every client PRIOR to taking them to market. This ensures that our clients know their value before talking to buyers and makes them much more buyer ready than those not using an intermediary.
Finally, more and more PE firms are creating business development teams and/or are hiring companies that specialize in buy-side acquisition searches. This can be good and bad for owners of privately held companies. The good is that they will probably find you if you meet their investment criteria. The bad news is that the PE firm will negotiate a deal that will benefit them, not necessarily you. And since many of these deals are partial sales, meaning that you are retained in the new company, the last thing you want to find out a year after a transaction is that you left significant cash on the table because you were unprepared to negotiate.
We love PE firms, we sell lots of companies to them, but we are not naïve. PE firms survive because they generate an internal rate of return (IRR) for their limited partners that allows them to satisfy their investment needs. This means that they want to pay as little as possible for your company, keep you on board to run it, and flip it 5-7 years out when it is a much larger company. That is great for you, since you will take a “second bite of the apple”; however, no one likes to leave chips on the table via the initial investment.
To prevent that, you need an M&A intermediary to provide wise counsel. That is where Generational Equity steps in: We have over 34K buyers registered in our buyer database, many of them equity firms. On an annual basis, about 25% of our clients are acquired by equity firms either as platform companies or add-ons. We have the experience you need to get an optimal deal for you.
Act now before a PE firm calls you with an offer you think might be too good to pass up.
Carl Doerksen is the Director of Corporate Development at Generational Equity, part of the Generational Group.
© 2021 Generational Equity, LLC. All Rights Reserved.
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.Caroline Connelly, CEO, OptoTest
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!JoAnn Ellis, Owner of Fondren 5 Star Kennels
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.Salvo Stoch, Founder and CEO of Sleeping Partners
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward. P.S. Given my experience with GE I felt comfortable enough to sign up with Generation Wealth Advisors!Tom Currier, Former President & CEO, Rackmount Solutions
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.Betty L. Brennan, President, Taylor Studios
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.Rick Greene of Dobbs Equity Partners LLC
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.JoAnn Ellis, Owner of Fondren 5 Star Kennels
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.Shane and Johanna Kline, Owners of Vision Upfitters
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
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