3 Tactics Private Equity Industry Will Use to Buy Your Firm

3 Tactics Private Equity Industry Will Use to Buy Your Firm

If you have a private firm that is running successfully and is doing well in the market, there is a high probability that some of the other PE firms will come after you looking for a buyout deal. A lot of private company owners get a number of e-mails, on a regular basis, from private equity firms, that try to tell them about the benefits associated with selling their respective businesses.

At first, it might look to you, a brilliant money-making idea as an entrepreneur running a small or mid-sized business, but eventually, you will most probably lose out on a lot, if been trapped in the offerings of such private equity firms.

The Career Prospects in PE in 2020

Talking about private equity careers and jobs in 2020, there are less opportunities available due to the economic downswing all over the world because of the ongoing pandemic. Once the market revives, skilled and certified individuals will again come into demand. Meanwhile, taking up a private equity certification program online would be a good idea to upgrade your skillset in finance.

Private Equity Firm Owners are Mostly, Big Investors or Bankers

The first thing you will notice about the PE firms in the US, is that they are not operators, but, either bankers or wealthy investors. They themselves have never operated business in their lifetime, but then, they are smart and good at making analysis. A majority of them come from top-tier business schools and have MBA degrees to their name. And hence, the love for spreadsheets, and analytics.

It also means that professionals from the private equity industry would understand your business in terms of its financial value, and growth potential, but not in a similar way, that you do.

3 Common Kind of Behaviors PE Firms Will Reflect Negotiating a Deal

Prior to selling your firm to a private equity investment professional, do make sure to observe the below-stated investor behaviors. Keenly observe these behavioral patterns among the professionals at private equity firms, who will try to lure you into selling your company.

  • They Will Put Themselves First

US private equity firms will always structure the business deal in a way that will eventually prove to be beneficial to them. They will, in no case, overpay you while buying your business. The top private equity firms in the world excel at analyzing businesses in the context of their monetary value, and growth potential.

After they take over your business, they start changing the management, business model & the structure of a business. When some serious money starts coming in, the top private equity firms in the world would issue themselves a large number of dividends, many a time, equal to the capital invested by them in your company.

  • They Decipher the Perfect Time of Selling

The best private equity companies will buy your firm for a limited time period, later, they will sell it at a much higher price than it was bought. 5 to 7 years is the maximum they will wait before they sell your company to some other PE firm. This means, when a PE firm intends to buy your company, it is seeking short-term profits to help boost the valuation of the company.

And for this to happen, they will force you to make decisions, and take steps, that will not suit the long-term goals of the business. If you refuse to make such moves, as directed by them, they will consider moving to their next option.

  • After Takeover, CEO Will Get Fired First

While in the process of making a buying deal, the PE firms will say nice things about your current business management team. They will even say that they are only willing to work as partners with them in order to make the business grow. But, the history says it all – a majority of CEOs get fired the very first year of the PE firm acquiring the business.

The reason behind this common occurrence is that if the company bought is not being able to perform, as what the investors would have wanted, or if in case, the PE firm had overpaid, a scapegoat is needed to blame onto.