Selling Your Business to Private Equity Investors

Tips for selling your business to a private equity firm If you’ve grown your business from an idea or passion, or possibly a family business that doesn’t have a suitable heir to carry on, selling the business may be the best way to continue your family’s legacy and ensure the longevity of the company. But what if the most enticing offer comes from a private equity firm? Does that change your perspective as a seller? While private equity sales are typically structured differently than a strategic buyer, it does offer advantages for both the business and seller, depending on your exit timeline.

Funding the Transaction

With a private equity buyer, you can be sure that the business will be well-funded and have access to resources that can help it grow. Private equity firms typically invest in businesses for a five to seven-year timeline and have a vested interest in seeing the business succeed. This may be appealing if you’re worried about the future of the company post-sale.

Continuity of Management and Employees

Selling to a private equity firm will also usually allow you to maintain some level of control or involvement in the business. You’ll still be able to provide your expertise and knowledge to help the business grow and may even be able to negotiate a role as a consultant or board member. Additionally, employees are typically retained as part of the sale, which can provide some continuity for customers and help with the transition. Many times the deal with a private equity buyer will be structured with the seller retaining a percentage stake in the company, which further incentivizes a smooth transition and growth prospects. The stake in the company does tether the seller to the business for a longer period, so full retirement or starting a new venture may not be in the cards for a bit, but with a cash infusion and fresh eyes and leadership talent, this extended exit strategy may offer a greater payout in the end.

Potential Disadvantages

Selling to a private equity firm also has its potential disadvantages. One is that you may not receive all the money upfront for the sale. Instead, the private equity firm will often structure the deal as an earn-out, where you’ll receive periodic payments over time based on the performance of the business. Additionally, you may be required to sign a non-compete clause as part of the sale, which could limit your ability to work in the same industry or start a new business.

If you’re considering selling your business, take the time to understand all your options and what’s important to you in an exit strategy. Selling your business to a private equity firm can be a great way to ensure the future of the company and provide some continuity, but it’s not right for every situation. Carefully weigh the pros and cons to make the best decision for you and your business.