In the situation at hand, a CEO was approached by a private equity firm to partner with his company. He was seeking insight into knowing if the firm and offer are a good fit.
If I were in your shoes, a founder CEO, I would first reflect on what I want in the long-run for the business and its vision. As difficult as it may seem, I would do my best to avoid feeling enamored with the first offer that comes across my desk – yes, it’s exciting and flattering to be approached with this kind of opportunity, but generating and considering other perspectives from PE and strategics could yield better alignment.
Partnering with a PE firm entails spending a significant amount of time working with members of the PE operating teams to build out the next stage of the business, so it’s vital to not only enjoy their company, but have principal agreement on the path forward and the end goal. PE firms seek a return on their investment, and thus the most important thing for me to understand is how they plan to generate that additional value as a controlling interest in my company. When I was in this situation, I sought a partner who saw the future the way I did. From there, we aligned on a strategic plan that was beneficial for both parties. Another key element to consider is the firm’s area of expertise and if it appropriately complements the areas of the business that need help. Finally, I would seek out business leaders who have previously partnered with the PE firm to hear their perspective on the relationship. While the PE firm will frequently present you with current portfolio company references, the best source of unbiased insight comes from people and firms that the fund already exited. You need to seek those on your own.
The common historic perception of private equity firms has been that they are “barbarians at the gate” who will do whatever it takes to make a return on the initial investment. However, these days there is a lot of great synergy between PE firms and mid-market companies. A private equity partner – if it’s the right one – can do a lot for the business. Best of luck.
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