Just because private equity is private doesn’t mean it has to be mysterious too. Trey Vincent of The Riverside Company takes some of the drama out of selling your family business
The new incarnation of the iconic 1980s show Dallas has me thinking about Stetsons, blue eyeshadow and big hair. It’s also got me thinking about how nasty people can be when they’re quarrelling over wealth. Family business owners know plenty of drama just from the day-to-day running of their companies, so when the time comes to hand over their ownership stake, the less it looks like a soap opera, the better.
Private equity probably doesn’t spring immediately to mind as an option when one is ready to make a move with their business, but perhaps it should. Done right, a private equity investment can be the smoothest path to putting a business in great hands and leaving it poised for more growth. It also affords a lot of flexibility.
Few people realize how often private equity invests in smaller enterprises, and just how simple and beneficial it is as a process. The emphasis on ‘private’ in private equity has long shrouded the industry in mystery. While larger private equity firms often make headlines acquiring companies like Hertz or Hilton, many of the transactions in the industry take place among smaller companies, including thousands of family-owned enterprises.
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Selling Might Be the Best Option
Family business owners have myriad reasons to sell their businesses when the time is right. Some of the most common include:
• Quite often, business owners simply want the freedom and flexibility that comes with the liquidity of selling. After years of hard work building a business, they are free to cash in, diversify their wealth and enjoy some well-earned rest.
• Retirement concerns because the future retiree (president, owner, etc) does not know how to build and execute a successor plan.
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• Families may face some Dallas-type issues related to power struggles, succession and other intra-family politics.
Why Choose Private Equity?
Most business owners are passionate entrepreneurs who’d like to see their legacy preserved. Sellers work with reliable private equity partners because the system is designed to make companies bigger and better while providing multiple opportunities for wealth creation for the seller. Most appealingly, a firm should protect the legacy and meet sellers’ needs by:
• Focusing on growth.
• Providing peace of mind.
• Paying a full and fair price.
• Creating a flexible partnership.
What Private Equity Delivers
A good private equity partner is motivated to build on that legacy and improve the company by bringing in talent and resources. This is especially helpful when:
• The viability of the enterprise requires the resources or talent of the founder. A strong private equity partner can help financially and strategically.
• The company is managed by an insufficient group that inhibits growth and does not allow for succession planning with potential managers and leaders coming up the ranks.
• Specific experience and/or strategic shifts are required to pursue new opportunities.
• The company lacks specific plans for its own future business picture and needs help to realize potential growth.
Aligning Interests
A good partner will design its ownership model to motivate and reward every stakeholder for the success of the firm.
Finding the right partner for your business is all about putting your company in good hands while providing option for your assets and eliminating drama. Leave the soap operas to Hollywood.
Trey Vincent is partner at middle market private equity firm, The Riverside Company. He can be contacted on +44 (7867) 727 321 or by email twv@riversideeurope.com
