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What to Expect when Selling Your Small Business to Private Equity

Selling the majority share of your small business to a private equity firm can create growth opportunities that may ultimately increase the value of your business–so much so that the minority share you negotiate for ends up being worth more than the majority share you initially owned. A study on the impact of large private equity acquisitions found that 85% of private equity-backed companies experience significant increases in sales and productivity within three years of the transaction.

However, achieving a handsome payday from a private equity firm requires time, diligence and a smart strategy. Private equity firms have the advantage of experience; since they frequently invest in and buy small businesses, the firms have a streamlined vetting process that can move quickly and fluster a new seller. Consider the following three expectations when preparing to sell your small business to a private equity firm.

Distraction from management responsibilities

Between negotiating a purchase price, navigating endless terms and conditions and juggling dense legal documents, your productivity may take a hit. Prepare for an influx of more tedious activities, like thoroughly reading contracts, doing paperwork and organizing records. Since these tasks are bound to eat up time, either pre-delegate your day-to-day work to other members of your team or hire additional legal, accounting and tax advisors to assist with sifting through the administrative complexities of selling your business. Failing to upkeep your business throughout the transaction may lower its value and could even foil the deal.

Demand for accurate, well-organized financial and operational information

Interested private equity firms will review the details of your small business meticulously—especially the financials—so make sure your files are sparkling. Any negative findings may be used to negotiate reductions in the purchase price. To optimize your payout, keep track of your financials using responsible practices. The presentation of these documents reflects the effectiveness of your business structure and its ability to transition to new leadership.

Strategically tell your business’s story

Peak your buyer’s interest by engaging their emotions and sense of reason with a compelling narrative about why your small business is uniquely valuable. To close a deal with a private equity firm, think of your elevator pitch as practice leading up to this time, when you are telling your brand’s story for the win. The amount of pathos to include in your story will vary depending on the nature of your services, but be sure to communicate the logistical appeal of your business by emphasizing the capability of senior management and a vision for the future with a clear plan of action.

Although inviting private equity investors into the small business “home” you built can be daunting, preparation and organization will be your greatest allies in successfully maximizing the value of all your hard work. For more on what to expect, read up on Preparing Your Business for the Private Equity Exit Process and Ready Your Small Business for a Capital Raise or Sale.

Is private equity a fit to achieve the vision for your small business?

Learn more about our process and criteria here.

Posted by: Jeffrey Kadlic

A co-founder and managing partner at Evolution, Jeffrey has spent the past 15 years as an investor and private equity professional with a true passion for working with dynamic small businesses. @kadlic

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