The reality is sometimes sobering for the owner of a private company. The odds of cashing out one day are slim. Certainly to exit your business for $10 million or more, and I’m using factual numbers to make the point, the odds are 1 in 6000. That’s the math of approximately 6000 exit transactions (valued at $10 million or more) divided by the 27.3 million private companies in the US. Now even if you change the denominator, to the number of companies that tried to sell in any one year, I’m telling you the odds in my view of getting to the “retirement level” of exit are no better than 5%. This leave us with an interesting phenomenon. There are literally millions of private companies that are too small to sell to much bigger brothers. It just doesn’t move the dial for these really larger groups. Now that is not the case for a middle market PE backed private company, that is on the acquisition trail. That particular acquirer is often building a platform of related businesses, creating mass by stealth, quietly building market share to be saleable at a premium one day. Those acquirers love a small business that could fill a product or channel need.
A PE backed private company management team also presents distinct advantages to fellow private company owners who are considering selling:
- They have a coherent strategy signed off by the board.
- They understand exactly what they want to buy.
- They understand why and therefore the potential post-acquisition strategy.
- The management demonstrate empathy with owners because they are owners.
- Their operational skills can’t help shining through in early meetings. Owners love credible operators.
- They are constantly recalibrating their integration strategy as the facts are uncovered (or the deal is dead).
- They know how to investigate targets, where the bodies are buried and where the potential lies. They’ve just been through the exercise to receive funding!
- They are naturally very proud of their business, are ambitious, have been validated (PE firms tend to invest in winners) and selling the dream comes easy. When you’re buying so many acquirers forget they are selling.
- They get the importance of staff engagement. Acquiring talent is a key part of the deal and they need people to stay.
- They understand how tough it is to run a business simultaneously to an investor being all over your business. This will show up in so many ways before the deal is closed and people remember how they were treated.
These are the inherent genes in place with a PE backed private company. However like any great athlete those skills need honed and developed with a great process, playbook and collaboration platform.
The Portfolio Partnership – Buy-side investment banking re-imagined. The Portfolio Partnership continues to offer practical operational support to leaders who wish to scale their businesses both organically and by acquisition. We offer complimentary, strictly confidential, “surgery hours” most weeks to help you create a remarkable business. Ian@TPPBoston.com or call 978 395 1155.
