With the proliferation of lower middle market private equity, more and more small business owners are in a position to consider selling their company to a private equity firm. Since most small business owners are not wholly familiar with private equity apart from intimidating sounding Wall Street Journal headlines of the global “megafunds,” it is important to better understand the process that a private equity firm will typically undertake in order to purchase your business.
The Short Answer
In short, throughout the initial review, initial bid (IOI), management meeting, letter of intent (LOI), post-LOI diligence, and closing process, you can expect a lot of diligence requests and a lot of questions that will take up a substantive amount of your time. That being said, you can expect a much more structured process than with other buyers, and you can expect these professional investors to generally expeditiously move forward with an acquisition.
You can almost certainly expect to meet with some uncomfortable, or impractical questions or data requests – I suggest you try to keep your cool and understand that these private equity firms are simply trying to understand your business as best as they can. That being said, don’t forget that throughout this process, they should be at least partially in marketing mode – if any issues arise, don’t be afraid to cut off communication and move on to a different private equity firm.
For a more detailed look into the steps of the bidding process, see the next post here.