What Type of Companies fit Private Equity

Private equity is not a one size fits all approach. For certain types of companies, it is a great fit. For others it is a bad choice. With private equity, it is a smart move to understand your potential compatibility with the approach before you move too far down the road. Private equity universally involves a change in control or a purchase of a controlling or material portion of your shares. They use their capital along with debt financing to fund the purchase of your company, usually triggering a change of control. Private equity has significant industry specialization and deep benches of senior executive talent. They are smart about the industries they play in and are most inclined to have their own team installed as management of their newly purchased companies. Due to their size and ability to forge growth platforms, they understand industry valuations and pay market clearing prices, especially when they envisage clear growth.

They have a good number of successful operating executives on their team and have strong ideas as to the quality of talent and best practices needed to scale a business. Usually, these operating executives have grown and exited another company in the space and are looking for a new operating vessel to repeat their scale up success. Private equity has strong access to capital in the form of their own funds as well as ready access to lenders. Due to the popularity amongst lenders to finance private equity led deals – there is usually a group of go-to banks ready to fund any deal the private equity fund invests in. Private equity offers a company an integrated transaction platform and growth platform to creating value in the future.

Private Equity Compatibility Checklist for Business Owner

Before moving into a private equity direction, business owners should carefully consider how they feel about the possibility of the private equity option. All business owners are passionate entrepreneurs with strong intuitive gut instincts and a great ability to rally the troops. It’s how they’ve become so successful and built their companies in the first place. Yet upon reflection, many business owners struggle to see how their style can successfully mesh with the private equity approach. Some are a bit too set in their ways and not interested in change. Some don’t want to work for someone else. Whatever their reasoning, rather than dismissing the option outright, owners should take some time and reflect on the following questions. The answers to these questions will go a long way to helping you determine if private equity could potentially be the right move for you. Here is the Attract Capital private equity compatibility checklist:

Do I want to sell a large piece of my company?
Is there a great growth opportunity that I need help to seriously pursue?
Do I want to diversify my ownership and have an equity partner to bear risk of growth?
Is it better to have 30% of something big or 100% of something smaller?
Do I really want to take orders from someone else who thinks they know better how to grow my business?

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.