How should business owners respond to a private equity approach?

Have you ever been approached by an investor about selling your business, even when you weren't thinking about it? Understanding your business's value is crucial, but as an owner, your focus naturally lies on managing and growing it. So, why engage with investors when a transaction isn't on your mind?

Forward planning is one very good reason. In our experience most transactions are driven by personal factors rather than attempts to perfectly time a deal based on optimal market conditions.

Retirement, changes in personal circumstances, succession planning, or the sudden opportunity for transformational growth - organically or by acquisition - are all factors which can arise quickly. Having conversations well in advance allows owners to understand the options available when the need does arise.

Discovering new possibilities is another reason. We find these conversations can often highlight transaction approaches which hadn’t been considered previously.

For instance, owners who plan to retire but want to stay involved in the business for a period often find partial exits to be an excellent solution. This allows them to realise immediate value while working with the investor to manage succession and transition to a non-executive role. This is just one scenario, but knowing what is possible can help in future planning.

Another reason to engage with investors is that it will help determine who you want to work with in the future. Each investor is different, not just in financial metrics but in the ‘softer’ aspects like sector knowledge, track record, how they approach working with management teams, and what value they can provide beyond just capital.

A further crucial difference are the people themselves: sometimes owner and investor will hit it off immediately, but on other occasions they may have little in common. Best to work this out well in advance rather than in the rush of a quick decision, particularly if the intention is to work together after the transaction.

Getting to know an investor over time is a great way to both understand the options available and assess who to work with in future. Any reputable investor will provide opportunities to meet socially to test the relationship, as well as providing introductions to others they have supported for the owner to get the ‘real story’.

Some business owners may hesitate to engage with private equity firms due to concerns about the industry's reputation. There are many misconceptions about how private equity firms operate, but instead of relying on rumours, put your concerns to them directly. What is their sector knowledge? Who else have they supported or acquired? What happened after they invested and after they exited? What do previous owners and management teams say about them?

So the next time you are approached by a credible private equity investor, but are not yet ready to begin a transaction, it could well be worth taking the time to have an initial conversation. Any reputable firm will be prepared to build a relationship for the long-term, take time to answer your questions and provide you with the information you need to make the best decision for you and your business.

If you would like to have a conversation with us to explore your options, please do not hesitate to get in touch with me at here.