I’d like to spend some time this week on a concept often misunderstood by those who do not spend a lot of time in the M&A marketplace; Private Equity. In its simplest form, it is two or more individuals investing in a full or partial ownership of a company. This can take the form of three or four friends pooling resources to buy a company. We refer to these alliances as “three people and a checkbook” and have done many successful transactions with these investors.
The better-known form of Private Equity (PE) is a larger group of investors (individuals and institutions such as an insurance company or pension plan) whose pool of money is invested in a company by a team of professionals who then hire managers and populate the board of directors. Most PE firms have investment criteria which include industry focus, target revenue size and minimum EBITDA levels, and may include geographic preferences. In our experience, no two firms have exactly the same criteria or focus, which is why we keep a database of the investment criteria for more than 2,000 PE firms so we can focus on the ones who will be most interested in the companies we represent.
Unlike the smaller group above, these PE groups have several layers of employees:
When speaking with Private Equity firms it is important to know where in the hierarchy the contact is and what information they need to move the process forward. It is equally important to know what types of investments are most attractive to the firm’s decision makers before presenting any information. A PE firm's funnel of potential targets is large which can lead to many fruitless conversations in which owners invest their hopes, sensitive data and time to no avail.
At Beacon, we have a large database of Private Equity firms and know what types of deals they find most interesting. We can also help you steer clear of groups that take the data never to be heard from again or may be bottom fishing for an owner looking to exit at a discount. If you would like to learn more about what attracts Private Equity investors to an opportunity, please let us know.