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October 26, 2006 Selling to a Private Equity Group
Today I attended the Faegre & Benson Private Equity & M&A conference in
Minneapolis. Yes, the weather is better here than in Denver. The first
session was a panel discussion moderated by Bruce Engler from Faegre &
Benson featuring James Andersen, IWCO Direct, Gary Obermiller, Goldner Hawn,
and Craig Petermeier, Jacobson Companies. The first question posed to the
panel was "What were the lessons learned from selling to a private equity
firm?". Here are some of the highlights:
1) Time - the process always takes longer than you expect - five months plus
to close the deal;
2) Don't miss your numbers while in the sales process - as CEO your time
will be monopolized during the process and your management team must meet
your projections without you (especially EBITDA);
3) It is easy to underestimate the role of banks in the LBO process - bank
debt will often play an important role in the transaction;
4) Selling an ESOP company can be very complicated and in some instances
worse than an IPO;
5) Investment banker selection is critical;
6) Alleviating the fears of the employees can be difficult - when and how
you communicate why all these people keep showing up in rental cars is very
important (see #2);
7) Board meetings are no longer held over a Budweiser;
8) Accounting requirements and staff will increase dramatically along with
reporting requirements; and
9) A strong private equity firm will really help you identify new
acquisition targets.
The panel was then asked "What was the downside of selling to a private
equity firm?". The group had two minor complaints, the first being that it
was exhausting and time consuming to continuously explain the business model
and the second being that often board meetings were too theoretical. Times
are definitely good!
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