These steps will help whilst selling your business to a private equity firm
You are selling your business to a private equity firm and you want it to go smoothly. As you enter the “Lion’s Den” you should be prepared. Doing business with a private equity firm can be an advantageous decision if you are prepared for the negotiation process. Selling your business is an exciting and complex process so having a plan in place is beneficial.
Here are several key points that might make what could be a long, arduous process easier, and result in a positive ending for all parties.
What Is Your Business Worth?
There is often tension when selling your business to a private equity firm. The seller naturally has a higher valuation of the business than the private equity firm, causing friction in the transaction.
Have you established a “range of values” for your business? Before you begin the “mating dance” you should consider engaging a valuation expert or investment banking firm to advise you on a range of values. These experts help you evaluate the current valuation landscape and will be able to share information about similar transactions to see where your business value is positioned.
As you develop a financial picture that tells a compelling story, the appraisal of your business can be used to maximize value and develop a framework of ranges. It also explains your financial strategies and highlights why your company is appealing to a private equity firm.
When selling your business to a private equity firm, consider immediate and long-term financial goals, as well as the goals of all its investors and management team.
A private equity transaction will traditionally allow a seller a minority stake in the business. A seller should understand a buyer’s planned ownership horizon, the private equity firm’s ultimate exit plan for the business, and how that fits in with the seller’s post-sale vision and total compensation.
