During the last decade, Private Equity Groups , (PEGs)have become a major purchaser for privately owned companies. The money is thought to be there due to the “fat” balance sheet of the groups investors. It is no wonder therefore, why many business owners seek to sell their firms to these types of acquirers.
There is a short list of key requirements that most private equity groups have in common. It’s incumbent on the prospective business seller to be aware of these requirements and how their businesses “stack up” accordingly. Here are three of the most important requirements:
1. Company management/ key employees will be staying to run the company for the PEG. The owner / seller may have the opportunity to stay on in a GM capacity, but the key employees staying on must have the experience to run the firm.
2. Stability of the customer base: PEG investors want to minimize the issue of customer retention through a proven track record of the customer retention.
3. Most PEG’s looking at smaller companies will require a minimum of $1,000,000 in owner’s cash flow (EBITDA plus owner’s salary). This amount will be after subtracting the annual salary for a GM.