Private equity firms have raised so much capital over the last 12 months that they are vigorously competing with one another for opportunities to put their money to work. Business owners, who previously would have had to go hat-in-hand to investors, instead find themselves inundated with unsolicited offers for their companies. Companies with solid balance sheets, good management and strong growth prospects are able to tailor deals to their liking, and get solid valuations.
According to Private Equity Analyst, a newsletter that covers the private equity and venture capital industry, private equity groups raised $53.9 billion in 2004, more than double the $26.4 billion raised in 2003.
"All this money out there means business owners might be able to get a better value for their company or sell less of it or both" says Patrick Haden, a partner with Riordan, Lewis & Haden, a private equity firm in Los Angeles. "And it allows owners to choose the firm they want to work with, the firm that can help them the most".
Before the wave of private equity fund raising, strategic buyers would often be in a position to pay up to 25% more than private equity buyers because of the synergies and economies of scale that they brought to the table. But now, flush with cash, private equity groups are largely matching the offers of strategic buyers and sometimes exceeding them.
Because of the amount of capital chasing middle market companies, private equity groups are finding it increasingly difficult to pinpoint good deals. According to Troy Noard, a managing director at Frontenac, a private equity firm in Chicago, "during the last six months, private equity firms have gotten very proactive about contacting business owners directly rather than waiting for investment bankers to bring them deals."
From the owner's perspective this is both good and bad. It's good because owners are now beginning to realize they have options. It's bad because private equity groups are trying to by-pass the controlled auction process that investment bankers run so that they don't have to compete against other buyers in order to win the deal. This doesn't allow the business owner to maximize the value of this company through an auction and, because the owner is only talking with one buyer, it shifts the negotiating power to the private equity.
Having multiple suitors to choose from also allows business owners to negotiate from a position of strength, greatly influencing the price, terms, and structure of the final deal. If a prospective buyer isn't able to meet the owner's key terms, the owner can walk away confidently knowing that he or she will be able to find a viable alternative.
For business owners this "Seller's Market" means that they can take their time to investigate which private equity firm would be the best fit for them and their company. Many private equity groups actually want the former owner to stay involved in the company and retain a meaningful stake so that he is invested in the company's future performance. As long as the business is on the right track, they will often ask the business owner to stay on, if not as the CEO, then in whatever role the owner prefers, such as sales, operations, or as a consultant.
If you own a company with revenues of between $5 million and $150 million, this is a unique time to consider your options. Valuations are at a four year high, capital gains rates are at a 40 year low, and institutional buyers are aggressively looking to make acquisitions. That makes this a unique time to consider selling your business.
Author Bio: Rich Jackim, former Wall Street attorney and experienced investment banker has helped over 60 business owners successfully exit their companies and realize their personal goals. He is the author of the recenly published book, "The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners." Available at http://www.exit-planning-institute.org Rich is the president of The Christman Group LLC, a boutique investment bank that specializes in selling privately owned businesses.
Rich received his BA from Colgate University, his JD from Cornell Law School, and his MBA from the Kellogg Graduate School of Management. He is a sought after speaker and has either published articles or been quoted in Business Week, Chicago Tribune, Chicago Daily Herald, The Business Ledger, Bulk Transport, Plastics News, Indianapolis Business Journal, Nashville Business Journal, and other regional and national publications.
executive chauffeured services Bradford .. Madison to Airport carPart 1A few weeks ago I attended a seminar sponsored... Read More
These may sound like no brainers, but you'd be surprised.... Read More
Writing a business plan to help you direct and manage... Read More
It is always said "If you Fail to Plan, you... Read More
Many of Ohio's downtown areas are in need of upgrading... Read More
Business owners and entrepreneurs are, by nature, risk takers and... Read More
Business plan financial projections seem daunting because they are so... Read More
To stop a computer virus you must understand how it... Read More
I. INTRODUCTIONThe term resilience, which is of frequent use in... Read More
If you own a mobile franchise business and wish to... Read More
Remember reading "Alice in Wonderland?"She asks the Cheshire Cat, "which... Read More
Running a business, whether it be an offline multi-billion dollar... Read More
After 128 years of business, a household word, Montgomery Wards,... Read More
What do Mark Victor Hansen, Robert Allen, Anthony Robbins, Andrew... Read More
People often ask "What makes a good business plan? Or,... Read More
Microsoft Great Plains does wonderful ERP job for horizontal markets... Read More
Twice a year, Bill Gates goes to a remote island... Read More
ACTION PLANNING: Action Planning is a process to develop strategies... Read More
There is so much small business information available today that... Read More
When developing the competition section of your business plan, companies... Read More
One Research Scientist at the Hewlett-Packard (HP) Imaging Systems laboratory... Read More
Businesses tend to avoid doing their annual business plan thinking... Read More
Diversify - to make diverse, give variety, to balance, to... Read More
Does your overall business strategy include the recruitment of college... Read More
American Eagle Outfitters and Wet Seal Stores have issued statements... Read More
O'Hare Chicago prom limo ..ACTION PLANNING: Action Planning is a process to develop strategies... Read More
No matter what business you plan to start in your... Read More
Why cut costs now? Efforts are multiplying to cut costs... Read More
This will make some people angry as hell, but it's... Read More
When someone mentions business planning we have been conditioned to... Read More
After 128 years of business, a household word, Montgomery Wards,... Read More
I've either been involved with or held a process-related role... Read More
Cassy was an employee of a nonprofit who had been... Read More
Franchised companies often require what some believe to be excessive... Read More
You might be thinking to yourself, "Why should I waste... Read More
As a business owner, you've likely created a hurricane plan... Read More
Here is an abstract thought on studying nature and the... Read More
Anyone who has been watching the Idaho Market Carefully for... Read More
Microsoft Great Plains fits horizontal markets clientele and in case... Read More
The format of a Business Plan is something that has... Read More
You have invested a lot of time and energy on... Read More
A recent conversation started with a typical question, "How's business?"... Read More
Making money doesn't make your reputation... your reputation makes you... Read More
In this small article we'll concentrate on farmers associations and... Read More
Many business start-up kits or consultants will tell you one... Read More
What do Mark Victor Hansen, Robert Allen, Anthony Robbins, Andrew... Read More
The day you decide to take the plunge and work... Read More
With the help of balanced scorecard strategy map, it is... Read More
GETTING STARTED WITH SUCCESSION PLANNING: PART IA survey of 4,300... Read More
In 1989, Sony founded its Institute of Wisdom at the... Read More
Strategic Planning |