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Preparing Your Small Business for the Private Equity Exit Process

So much has been written about selling to private equity, but far less has been discussed about when private equity sells and what is done to prepare the management team for the private equity exit process. However, it is important to note that because all private equity funds are not the same, my comments here are not comprehensive, but only one firm’s perspective.

preparing your small business for the private equity exit process

For clarity’s sake, Evolution Capital Partners (Evolution) invests in and partners with small businesses where we are often the first round of “institutional capital.” This means that up to this point in the life of the business, any outside equity capital has been invested by friends and/or family. We have great partners in the business owners we work with, who are deeply dedicated to the companies they have successfully grown – oftentimes over many years. But like any first-time situation, educating and preparing affected parties is a critical first step in the process.

1. Address Fundamentals

First and foremost, fundamentals need to be addressed. For instance, Evolution shares its target investment returns with the leadership team and, if achieved, they would be a triggering event for moving toward an exit. We want our partners to understand our preferred investment timeline, which generally starts at five years, but in full transparency can be shorter or longer depending on numerous factors. We want to understand management’s desire to continue the business with a new private equity partner or strategic buyer. Depending on desires, we may consider hiring future leaders who can help guide the business into its next phase.

2. Maximize Value

Understanding the management team’s financial goals is also key. We want to guide our partners through the countless combinations of business growth, incentives and ownership, as well as how that preferred financial outcome can potentially be achieved. Ideally, all shareholders’ personal, financial and professional goals will line up in terms of probable outcomes and timeline. Setting expectations early on is key to a smooth and successful transition during what could otherwise be a highly stressful event.

We all have blind spots. I have found bringing an outside perspective into the conversation is key, especially during the final few years of an investment. The key question to address is what can be done between now and our target exit quarter to maximize value. There are many different sources of information to consider, but Evolution will often default to a particular investment bank that has an expertise in the area or strategy with which we want to be perceived as being aligned. For example, if we have a technology-enabled business service company with a roadmap to becoming a software company, we may want to gain the perspective of a software investment banker. Their non-operational outlook – which uses terms like “multiples,” “comparable transactions” and “business models” – can sometimes feel foreign, but a necessary perspective to management as they begin to understand how the market will ultimately evaluate their business.

3. Be Prepared

The final topic I want to address is specific issues around company and shareholder preparedness (private equity or otherwise owned). There are questions every small business owner should ask themselves when preparing to exit their business, such as:

  • Is your business transferable?

    • Meaning, does the business stand on its own or does it continue to rely on the founder for its success (hopefully the former)?

  • Are your processes and technologies transferable?

    • Meaning, do you have documented processes and procedures, a technology roadmap and intellectual property protections?

  • What are the major concerns potential buyers will have, and how can management address those concerns?

  • Do we have a strong case to achieve the desired financial outcome?

  • How would a potential buyer finance the acquisition? Is leverage available?

  • Has a net proceeds (after taxes and transaction expenses) analysis been completed?

  • Has a data site with expected due diligence requests been fully prepared?

The process of an institutional sale is comprehensive, and I have only scratched the surface of what considerations need to be made. Suffice it to say, the earlier you start the conversation, the better the outcome for all involved.

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

Comments (2)


  1. Hazel Owens:

    That definitely makes sense how you will get an outside perspective, especially an expert that is connected to things you are investing in, in order to see any blind spots before closing the investment. I bet that using an outside source would not only help you see blind spots but also point out ideas that you may not have thought of on your own. I think this would really help in private equity deals.

    • Jeffrey Kadlic:

      Yes, outside advisors can be helpful with overall industry and market dynamics that you, as the owner, may not have a pulse on with the pressure of running your business on a daily basis.

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