Can your firm be sold to a private equity group?
Private Equity Groups (PEGS) have been around for decades. They continue to gain momentum as a primary acquirer of small businesses in recent years. Part of the reason for this increase in acquiring activity is the issue of wide stock market swings. These swings motivate high net worth investors looking for more a secure annual cash flow.
PEGS are a group of individuals who pool their balance sheets for investing and developing an acquisition portfolio for diversification. Private equity groups are expanding their acquisition criterion into small firms with lower EBITDA.
After factoring in the cost of hiring a new general manager, PEGS look at EBITDA well under $1M. Business owners should be aware of their adjusted EBITDA figures. And they should have an idea what it would take to replace with a general manager’s salary.
Accordingly, PEG’s normally do not want to be in-house professional operators or managers in their acquisitions. Thus, they leave that expertise to the GM they hire. The PEGs oversee from a distance by receiving monthly or weekly performance spreadsheets.
In many instances a business owner / seller does not want to retire . They can remain on as General Manager if office support is sufficient to handle the mundane functions. If it interests the owner in helping to run the firm with a PEG owner providing back office support functions, he may stay as GM which will fill a major role for the PEG.
While Private Equity Groups historically have been present in the market place, they are now major players in small business acquisitions. Owners who want to sell their business should become aware if their businesses will be attractive from both a free cash flow and a transition standpoint.
In 2022 awareness of how your numbers fit into the PEG criterion and how to position for transition can make the difference in finding a good buyer for your firm.