What is the best way to structure a deal with private equity investors?

1 Know your value

Before you approach any PE firm, you need to have a realistic and credible valuation of your business. This will help you determine how much equity you are willing to give up, and at what price. PE investors will use various methods to value your business, such as multiples of earnings, discounted cash flows, or comparable transactions. You should be prepared to justify your valuation with solid financial data, market analysis, and growth projections. You should also be aware of the industry benchmarks and trends that affect your valuation.

2 Choose your partner

Not all PE firms are the same. They have different investment strategies, industry preferences, portfolio sizes, and exit plans. You should do your homework and research the PE firms that match your criteria and goals. You should also evaluate their track record, reputation, and culture. You want to find a partner that shares your vision, values, and expectations, and that can offer you more than just money. For example, some PE firms can provide you with strategic advice, operational support, network connections, or access to new markets.

3 Negotiate your terms

Once you have identified a suitable PE partner, you need to negotiate the terms of the deal. This includes the amount and structure of the investment, the valuation and ownership of the business, the governance and management rights, the performance targets and incentives, and the exit strategy and timeline. You should aim for a balanced deal that aligns your interests and incentives with those of the PE firm, while also protecting your rights and autonomy. You should also seek professional advice from lawyers, accountants, and consultants to help you navigate the legal, financial, and operational aspects of the deal.

4 Manage your relationship

After you close the deal, you need to manage your relationship with the PE firm. This means communicating regularly, reporting on your progress, and delivering on your promises. You should also be open to feedback, suggestions, and challenges from the PE firm, as they can help you improve your performance and achieve your goals. However, you should also maintain your independence and authority, and avoid being micromanaged or pressured by the PE firm. You should remember that you are still the owner and leader of your business, and that you have a mutual respect and trust with your PE partner.

5 Plan your exit

Finally, you need to plan your exit from the PE deal. This means having a clear and agreed-upon exit strategy and timeline with the PE firm. The exit strategy can involve selling the business to another PE firm, to a strategic buyer, or to the public through an initial public offering (IPO). The exit timeline can vary depending on the performance and growth of the business, the market conditions, and the expectations of the PE firm and the other stakeholders. You should be prepared to exit the deal when the time is right, and to maximize the return on your investment.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?