If you are considering the sale of your company, then you may have also thought about what type of acquirer you would like to approach. You may have considered a private equity firm (PE firm) as an attractive prospect, as there are a range of benefits from partnering with PE firms such as the amount of funding available, their active involvement in the company and their expertise in creating value.
There are, however, certain criteria that PE firms look for when sourcing acquisition targets and the following tend to be what they will look for in a portfolio company:
A Good Management Team:
PE firms are unlikely to have a team in situ that they can seamlessly integrate into operations and they will also not be involved in the day to day running of the company. PE firms, therefore, will not only need to know that the company can run autonomously under a management structure, but that it can also facilitate change, helping the company to grow.
Infrastructure in Place:
Similarly, PE firms are unlikely to have a sales, marketing, HR, IT and customer service department to integrate into your company and will not want to use investment on building these teams but, for a PE firm, it would be a risk to acquire if these internal processes were not in place.
Evidence of Growth Trends:
The company needs to be one which has a track record of growth which will continue. It is also crucial that the company is operating in a sector that will still be relevant in the future, such as healthcare and IT, rather than a sector which could become obsolete with the emergence of automated technology. The reason being is that a PE firm needs to see that growth is more or less guaranteed as it needs to repay and generate a return for its investors.
To prove that the company is primed for growth PE firms will want to see a growth strategy in place. Depending on the type of company, this could be through evidence of research and development, perhaps so it can bring a new product to market, secure new customers, or sell more to existing customers.
Strong or Niche Market Position:
It is imperative for PE firms to ensure that they are not going to suffer in a competitive market. As this is the case, PE firms look at companies with a niche positioning so that they have minimal competition, or a leader in the field so that they can secure new custom even against a lot of competitors. Again, PE firms want to know that their investment will come into fruition, so don’t want this to be thwarted by the competition.
Good Exit Potential:
A PE firm will divest after a few years and this is where it hopes to make a return on investment. To do this, suitable potential strategic acquirers and private equity firms need to be interested in the company; therefore, a PE firm will need to see that there are potential acquirers for the company even before they have invested.
If your company does have the above in place, then a PE firm could well be the right type of buyer for you. If not, a PE firm could still be interested in your company. For example, there are certain PE firms who specialise in acquiring companies with heavy shareholder input and no management team.
If you are unsure about whether a PE firm is a good fit for your company, Benchmark International can help by either sourcing the right type of PE firm for you, or suggesting alternative types of acquirer.
WE ARE READY WHEN YOU ARE
Call Benchmark International today if you are interested in an exit or growth strategy or if you are interested in acquiring.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkCorporate.com
Europe: Carl Settle at +44 (0)161 359 4400 / Settle@BenchmarkCorporate.com
Africa: Anthony McCardle at +2721 300 2055 / McCardle@BenchmarkCorporate.com
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Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximising solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $5B across 30 industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 13 offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.