Partnering with private equity

By Chris Summerscales, Seneca Partners Limited.

When I meet with businesses looking to accelerate growth through making complementary acquisitions or other investment into the business, a question I am often asked is: “should we bring on an investment partner?”

Finding the right partner is an inexact science – some combination of due diligence, reference checks, and relationship.

These five questions could help sellers find the right match for their personality, their business style, and their future goals.

Does the private equity firm proactively provide complete references? A potential partner should offer access to the management of all companies with whom it has worked over the years. What is the firm’s track record with similarly-sized companies? Has the private equity firm done most of its deals in the seller’s revenue size range? Is it “dropping down” or “stretching up”? What does the potential partner offer beyond capital? In addition to financial resources, what other relevant value-added tools are available to management? What are the firm’s communication style and expectations after the deal closes? How do communications work between the private equity firm and the portfolio company, is the approach likely to become restrictive to day-to-day operations? What does the exit transaction look like? It is a given that a funder will look for an exit, most likely over a 3-5 period, where do they see the next phase of the business’ life and how do they make a return? Taking these key points into account will help business better understand the private equity process and how it may impact their own business. One additional question always worth considering: Can you see yourself having fun together?