Financing and Capital Markets

How Private Equity Can Point Business Owners to Profits

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Private equity offers business owners more than a way to sell. It can be a tool to build value for themselves and their companies, and they can benefit by engaging with a private equity firm sooner.

“In addition to financial capital, PE can bring a lot of different dimensions that can help a business owner change the profile of their business so that it becomes a bigger and more valuable enterprise,” said George Calfo, managing director in the mergers and acquisitions group at SunTrust Robinson Humphrey. “They can provide human capital and expertise as well.”

With ample capital to deploy, private equity firms are cold-calling business owners, particularly baby boomers, to gauge their interest in selling, Calfo said. Many owners take the calls. Of 500 baby boomers surveyed by Wakefield Research, 42% said they have considered selling to a private equity firm or a third-party investor as a transition strategy, according to a SunTrust press release on the biggest trends in mergers and acquisitions for 2019.

“PE is available and abundant, but each firm is really different,” said Scott Paton, head of financial sponsors coverage for SunTrust Robinson Humphrey. “If you are thinking of this tool for growing value, doing your due diligence on firms is an important dimension because there are so many firms, styles and approaches.”

Meeting business needs

If an owner decides they must make an acquisition to grow, they should consider a private equity firm that has done hundreds of mergers and acquisitions. Or perhaps an owner wants to move manufacturing offshore or switch from providing a product to a service. They could access such expertise through a private equity firm, Paton said.

“If you think of private equity as just a sale, you do get some value for your company,” Paton said. “But if you partner with them maybe 10 years sooner, you can increase the value of your business so that when you do exit, you will have the benefit of PE having helped you create value.”

The minority share that an owner retains when they sell to a private equity firm now could be valuable later. “The 30% they may have held onto its worth more than the 70% they sold. It’s the second bite of the apple,” Paton said.

Picking a partner

Business owners should look for the right firm and terms from a private equity firm they are considering. Independent advisors experienced in working with private equity firms can help, Calfo said.

“An owner may believe that all PE is a fit or that it’s all the same, but it’s not,” Calfo said. SunTrust Robinson Humphrey helped one client buy back the stake it had sold to one private equity firm so that it could then team with another partner. “The prior relationship was the product of them ignoring inbound calls until one day they answered the phone and ended up getting into a partnership that wasn’t a good fit,” Calfo said.

SunTrust Robinson Humphrey also helped the client find a new private equity partner. With help from the second firm, the client’s business doubled its profitability within a year, Paton said.

When considering possible PE partners, Paton suggests owners look for compatibility in areas such as company size, industry experience, valuation terms, and the extent to which a firm would be involved post-investment. “The founder and the PE firm should feel they have alignment on the strategy before an investment happens,” Paton said. A PE firm can bring strategies that succeeded elsewhere.

The owner also should understand whether they will be helping to shape the strategy, execute it, or do both, Paton said. And they should prepare to work with a board, either for the first time or in a more rigorous way than in the past.

“All private equity firms are financially oriented and focused on their fiduciary responsibilities,” Paton said. They want to ensure that proper controls are in place and that they’re working correctly.

“The discipline and rigor of capturing operating performance and financial performance and reporting that in a management’s discussion and analysis isn’t just, ‘Here is what happened.’ It’s ‘Here is what happened, here is why it happened, and this is what we learned,’” Paton said.

Working together well after the investment will create the most value for the business owner and the private equity firm, Paton said. “It’s a form of marriage, so you should make sure that the partners can work amicably and constructively.”

Though business owners often see private equity as the end, it really can be a beginning.

Do’s and don’ts of working with private equity firms


  • Understand which PE funds make the best partner for you and your company.
  • Prepare for any conversation or process beforehand.
  • Make sure you have updated books and systems.
  • Have a clear presentation of your company and opportunity.
  • Work with an investment banking advisor.


  • Fall in love with a firm.
  • Overvalue a PE firm’s interest.
  • Speak to only one or two parties.
  • Entertain conversations without being prepared or advised.
  • Consider all PE funds as being equal and interchangeable.
  • Go into it alone or with just your attorney.

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