Is A Private Equity Deal The Right Choice For My Business?

Private equity firms (PE) can provide much needed funding for small and mid-sized businesses. This funding can catalyze innovation and expansion, setting the business up for continued future growth.

But is it the right choice for your business? Afterall, you may remember when PE deals were known for their “strip and flip” investment style. This negative reputation was well-earned. It was not uncommon for these deals to result in a focus on short-term financial reward for the PE investors with little regard for the long-term success of the business. Business owners can help to mitigate this risk with thorough due diligence prior to accepting an offer. This can better ensure a transparent, beneficial deal with a PE firm, increasing the odds the deal will result not only in needed funding, but also provide business acumen needed to set your business up for continued growth.

What types of PE deals are most successful?

Business owners can better ensure these deals will lead to future success by asking themselves the following questions:

• Figure out your business’ needs.Is there an area your business needs to develop? Perhaps the current coronavirus pandemic has made it apparent that you need to increase your online presence. If this is the case, it can help to find a PE group that has expertise in this area.
• Meet with the PE representatives.If a PE group has proposed a deal, take the time to meet. Note how the group approaches the meeting. It is helpful to look for a group that enters the negotiations with transparency and interest in your business’ culture.
• Complete due diligence.The importance of due diligence cannot be stressed enough. This process will result in information about the PE group’s previous deals and structure to help guide your decision.

Taking these steps will increase the likelihood of a deal that is not just suitable, but beneficial, for your business.

Has the pandemic impacted the interest of private equity firms?

Recent data shows that there was a slight dip in investment capital put towards private equity led deals. Prior to the pandemic, investors were putting forward approximately 62% of their capital towards these types of investments. During the pandemic, data shows these investors are putting forward 54%. Although the numbers have dropped a bit, funds are still available to keep these deals going.