Not All PE Firms are the Same: How to Choose a Good One
Private Equity, as an industry, has been battling a negative perception since the 1980s, when Wall Street was the tyrannical titan sucking up everything in its path. With a rap sheet saturated with corporate raids, hostile takeovers, asset stripping, major layoffs, and more, private equity firms haven’t done themselves any favors.
But that was forty years ago.
And while there is no denying these firms still exist, it’s worth noting that contemporary private equity firms are very different. In fact, it might even be fair to say that no two are the same. There are bad private equity firms out there, and there are good ones, too. Whether you’re almost ready to sell your business, or it’s years away on the horizon, here are some key things to consider in your search for a private equity partner who will honor your goals, your employees, and your legacy.
5 Benefits to Having a Good Private Equity Partner
Partnering with a private equity firm who knows what they’re doing will make all the difference in the sale and longevity of your organization. Here are five ways a good private equity partner will improve your business.
Higher productivity. Private equity firms increase productivity by eliminating waste and inefficiencies. They can take an unbiased look at how your business is operating, and put new processes in place to make things run smoother and leaner.
Vast Network. When you partner with a private equity firm, you get access to more than their team. You will also be able to connect with their investors and other business owners in their portfolio to share industry knowledge and ideas.
Guidance and Resources. The loneliest job is to be the leader of a business or organization. A good private equity partner is there as a resource to provide support, information, and help guide you through the transaction.
Management incentives. For a good private equity firm, the objective is not to clean house. Quite the contrary. There are often management incentives - such as equity in the company - to keep high-performing management around.
Added value. This may seem obvious, but a good private equity firm should add value to your business. They accomplish this through all of the above - increasing productivity, providing guidance and resources, keeping quality management in place, as well as contract negotiations, sales expertise, and more.
5 Characteristics of a Good Private Equity Partner
Once your business is in the best shape possible, finding a good private equity partner is one of the first steps to selling your business. Here are five key characteristics you’ll want to make sure your prospective partner has in spades.
Trust. Selling your business isn’t as simple as selling your house and handing over the key. It’s a transaction that takes several years to achieve, during which you’ll encounter challenges and crossroads; so it’s critical to have a private equity team you can trust. Someone who is going to do right by you and your employees, and who makes good on their promises.
Transparency. Business owners are smart. You know when someone is telling you what you want to hear versus what you need to hear. Partner with a private equity team who is straightforward with expectations, who shares their knowledge, and invites you to speak with sellers of their portfolio companies.
Growth. Team up with a private equity firm who has a steady record of growing companies. These firms have the right processes in place and the right people to support your business through change, and will result in the best possible outcome.
Community. Private equity firms who are secure and live by good values, give back to their communities through scholarships, donations, sponsored events, and other opportunities. It shows they care about more than just their own bottom line.
Likeability. It may seem blunt, but you should definitely like the private equity team you’re going to be spending the next few years working with. Although it may not feel like it sometimes, even business owners and private equity professionals have lives outside of their careers. You want to partner with someone with whom you can have an enjoyable conversation and keep open communication.
A Relationship-focused Investment Approach
A negative stigma of private equity firms is often their lack of humanity. It sounds cold, but it’s the truth. When private equity firms look at selling your business as a black and white transaction, perhaps they are not the right partner for you.
Borgman Capital, located in Milwaukee, Wisconsin, has established a relationship-focused approach. By developing genuine, transparent connections with our business owners, we are able to trust one another with the challenges––and triumphs––ahead.
These relationships don’t end with the business owners, however. We want employees of the companies we buy to be comfortable, too. The last thing we want is for quality performers to leave. Therefore, we do everything we can to keep employees engaged, including giving management equity in the company.
The community is an important relationship to continue to nurture, even once the business is sold. We continue to support local charities and scholarships that the previous owner supported in order to continue their legacy and maintain status quo.
The Long Road to Longevity
There are no shortcuts when it comes to selling your business. While some private equity firms will purchase a company and flip it after three to five years, Borgman Capital is in it for the long haul. We build positive relationships with our business owners, their employees, and their communities because we know we will be on this journey together for several years.
This long-term investment strategy enables us to be flexible instead of making drastic, overnight changes. Instead, we make slow, methodical transitions over time to improve processes, increase productivity, and get your business in the best shape it can be when we go to sell.
No matter where you are in your journey, whether you’re almost ready to sell your business or it’s a small dot in the distance, we’re here to support you. Contact us today to learn how we can help guide you in a successful business transition.