In good times and bad, a private equity relationship can be transformative. Finding the right fit makes all the difference.
Key insights
- Private equity can bring the capital and resources you need to transform your business, but you need the right fit.
- There are ways to make your organization more attractive to a private equity firm.
- Savvy business owners recognize that a skilled consultant can help them successfully navigate the complex and un familiar world of private equity.
Discover if a private equity investment is the game-changer you need.
In the past, debt financing or going public may have been your only option when seeking capital. Today, many organizations seeking capital and strategic guidance to accelerate growth or reverse a pandemic setback view private equity (PE) as a place to start. PE is increasing chosen by health care organizations, nonprofits, and private businesses alike.
A private equity relationship can be beneficial at any point in your organization’s lifecycle. It’s not just for exits or succession planning. It can be a game-changer in good times and bad. During the pandemic, many PE firms stepped in to provide essential capital, strategic, and operational support to their portfolio companies.
Plenty of “dry powder” looking for quality companies
There is an abundance of available capital. An analysis by data provider Preqin the amount of “dry powder” held by North American private equity firms at $976 billion, roughly doubling since 2010. If you’re considering a private equity strategy, you need to determine whether it’s a good fit for your organization, how to choose the right private equity firm, how to make your business attractive, and how to select a knowledgeable consulting firm that can guide your decision-making.
- A good first step is to determine what your objectives are, such as an opportunity to scale quickly or acquire a synergistic company, and how much capital and support you need to meet them.
- Once you’ve defined your objectives, it’s time to find the most appropriate source of capital at the lowest cost.
All financing options carry costs and benefits. Calculations become very complex very quickly. For example, a traditional, asset-backed bank loan may look like a good deal based on a low interest rate but how does the cost stand up against a private investment that builds your equity in the business, particularly if you are planning to sell? An experienced consulting firm can help you analyze all the scenarios and choose the one that’s most beneficial. It can also provide a ready ear, steady counsel, and peace of mind as issues arise and you work to achieve your goals.
Beyond capital: align on style, culture, and goals
Capital is important but it’s just the beginning. As you consider a private equity relationship, keep these points in mind.
- What does the private equity firm bring to the table? Consider how well they know your industry, the strength of their team, and their management style.
- Some firms are more collaborative than others. Determine whether you’re a match culturally.
- Be sure your goals mesh. The private equity firm may be looking to slash costs and make a fast exit, while you’re committed to keeping the business going and your employees on the payroll.
To bring clarity to these issues, do extensive due diligence. Look closely at current and former portfolio companies that are the same size and in the same industry and don’t hesitate to reach out to them to learn about their experience.
Win at the “PE Dating Game” by making your business more appealing
If you decide to pursue a private equity investment, you’ll want to make your business as attractive as possible. Robust growth, an outstanding management team, and good infrastructure and processes should result in the strong financial performance private equity firms are seeking. If these factors aren’t in place, you can discuss strategies to build them through strategic management hires or investments in IT and other infrastructure.
Understandably, figuring out the ins and outs of a private equity relationship can be daunting. You may have spent many years hyper-focused on growing your business, with little time to worry about the complexities of private equity.
A knowledgeable consulting firm can help you be confident your interests will be protected and you can achieve your personal and professional objectives. If you’re in the market for a firm, look for one who has extensive experience working with private equity and businesses like yours through the full lifecycle, from initial investment to exit. Specifically, look for one with direct experience with organizations of your size in your particular industry and with deep knowledge of your ecosystem.
Change the game in your favor
Be sure that the consulting firm offers a full range of services, can do comprehensive due diligence, and has data and analytics capabilities. Given that private equity relationships can be complicated, you will need people who are skilled in strategy, operations, financial modeling, valuation, tax, information technology, human resources, and other areas.
If you’re ready to strengthen or transform your business, the right private equity fit can be a game-changer. Most importantly, put the right resources in place to help the game change in your favor.
How we can help
At CLA, we understand that your business may be at a crossroads as you consider a private equity relationship. Our goal is to understand your objectives and give you the knowledge and confidence to find the right path forward. Working across our organization, we offer an integrated approach to understanding the complex and highly specialized world of private equity and how you could benefit.