BDO LLP | PRIVATE EQUITY
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DEMYSTIFY: ORIGINATING THE DEAL The first stage is all about demystifying the PE process, so you can look at your business through the lens of an investor and begin to visualise your approach to a deal. It’s important that, by the end of this phase, your approach, goals and expectations are aligned across your management team and other stakeholders, so you can all move forward together. Here are some key questions you should be looking to tackle before originating a deal: • What is your definition of success for yourself and your business over the medium and long term? • What is your business plan to achieve this? • How much investment do you require to fund your business plan? • What alternatives are there? • What are your ‘non-negotiables’? • How could you accelerate your plans and grow your business faster? Once you’ve answered these questions you can then consider how they might be aligned with those of the PE investor. Remember, the main goal of a PE investor is to drive growth in value. Therefore, it’s very important to be able to communicate the value and growth potential of your business. To help you achieve this, we use a tried and tested valuation model, clearly demonstrating the prowess of your business in four different areas: • Risk quotient
In most cases, a PE deal is structured with a private equity firm buying a majority share, leaving the founders (or subset of them) with a minority shareholding. This reinvestment is called a “rollover investment” and makes your company more attractive to PE investors by demonstrating your confidence in the future success of the business. Some PE investors even refuse to deal in sales where existing owners are not willing to retain a stake. PREPPING YOUR BUSINESS FOR SALE So, you’ve decided that PE is right for your business. However, if you’re new to PE the process can seem complicated, with multiple overlapping steps and technical jargon. That’s why it’s almost always best to bring on an external advisor to help you navigate the process and steer you clear of pitfalls and common mistakes. At BDO, we’re well attuned to the PE landscape, with many years’ experience guiding businesses of all shapes and sizes through the sale process, in order to bring them out in the best possible financial position. While we promise to take on much of the heavy lifting through the process, we also believe it’s important that you, the founder, are able to follow negotiations and be an active participant in the process. To simplify things, we like to break the PE process down in to four key stages: demystify, navigate, accelerate and realise. If you’re thinking about working with a private equity fund, you need to work within the first two of these stages, with the latter two focussing on growth through PE ownerships and the ultimate exit. Let’s take a closer look at these first two stages.
• Revenue growth • Cash conversion • Margin
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