If you’re considering selling your manufacturing business, you might be thinking about selling to a private equity firm or private equity group. As Inc. explains, a private equity firm — or PE firm — operates an investment fund that usually lasts for around 10 years.
Because its investors want an ROI that’s greater than the normal stock market return, it looks for opportunities to invest in certain types of companies. In general, these companies:
- Operate in an expanding market.
- Have solid management teams and plenty of opportunities.
- Lack the capital to take advantage of all of those opportunities.
And that’s where the PE firm comes in — it can provide the cash needed to take the business to the next level. Then after a number of years, it usually sells its stake — or the entire company to a third party in order to access its returns. Clearly, selling to a PE firm is something to consider. Here are some of the benefits it offers.
The Private Equity Firm May Keep You on After the Sale
If you’re not yet willing to close the door behind you for the last time, it’s good to know that some PE firms will want you to keep a minority stake in the company and stay involved in its running.
Your leadership abilities, the loyalty your employees have to you and your ability to grow your manufacturing business are all important aspects they’ll want to leverage. In many cases, even if the PE firm has a majority stake, it will seek an arrangement in which it provides the financing while you continue to provide expertise and deliver profits.
The PE Firm Will Thoroughly, Objectively Assess Your Manufacturing Business and Market
As Channele2e advises, a PE firm will perform due diligence to analyze your manufacturing business from top to bottom — and without any of the emotional connection, you might have. While this can feel uncomfortable, it will reveal the true state and value of your company.
The PE firm will also analyze your market and pinpoint any opportunities or threats. The result is a clear overview of your company’s strengths and weaknesses that can be leveraged as a roadmap to optimize your manufacturing business and further expand it. This is especially beneficial in the event you want to stay involved in the business.
You Can Pursue New Opportunities for Growth
If you’ve been racking your brains regarding how to get sufficient capital to take advantage of growth opportunities, a PE firm can be just what you need. Because the PE firm wants the maximum ROI, it will proactively pursue opportunities to expand.
Depending on your line of business, that can mean anything from creating new product lines to breaking into new markets — and that can mean you’ll be facing a lot of exciting new challenges. The PE firm may rely on you to provide the expertise, or it may provide its own experts to help grow the company to the next level.
You Can Free Up Cash While Increasing Your Equity Value in the Company
As Forbes states, if you remain involved in the business, it’s the PE firm’s objective to grow the company to the extent that your new minority stake will ultimately exceed what the company would have been worth if you’d continued alone.
So, by selling part of your stake to the PE firm, you can initially free up cash while looking forward to higher returns on your remaining share of the business. At the end of the day, that means you’ll have a higher cash out than you would have had under your own power.
Get Expert Help Finding the Right Match
Different PE firms have different objectives:
- Some will give you a full liquidity event if you want to retire — provided there are good managers in place.
- Some allow you to maintain equity if you want to, which opens up the opportunity for a second liquidity event later, when the remaining shares are sold.
- Some specialize in funding growth. They provide financing and know-how in exchange for equity, which helps you grow your manufacturing business to the next level.
Due to this disparity, it’s critical to get expert help finding the right match for your situation. That’s why it’s advisable to work with an M&A specialist to prepare your business so it can be considered by PE firms. In addition, you’re best advised to find an M&A broker who possesses relationships with PE firms that specialize in manufacturing.
Selling to a PE firm can be a great opportunity — providing you find one whose objectives align with yours. So consider your goals and consult with an experienced M&A advisor to find a PE firm that offers the type of buyout you’re looking for.