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When selling to private equity is the right succession plan

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Selling a company to a private equity firm can be a succession exit strategy when cashing out the business at the highest value possible is the top priority.

For some owners, retaining a portion of the business during the transition or exiting over a period of time also can be an option in a private-equity purchase.

Private equity funds raise money from wealthy individuals and institutions to buy and sell businesses.

Michael Wolfe, a partner at Trout, Ebersole & Groff, LLP in Lancaster said private equity funds typically buy or invest, then grow a company over a period of time - often from five to seven years, to increase its value prior to selling it again.

A good economy, meanwhile, is fueling buying interest among private equity investors who may have ample cash at the ready, said Ryan Hurst, a manager in RKL LLP’s business consulting services group in Wyomissing, Berks County.

“There is a heavy demand for quality acquisitions, but buyers are using more discretion. They want high value, low risk and low investment,” Hurst said.

He said most business owners considering a private equity sale have already weighed their options and believe it to be best. “It’s common enough for a business to exit this way,” Hurst said.

Factors that might make a business attractive to a private equity firm would be growth or specialization, or an industry or business “ripe” for consolidation, he said.

Purchases by firms in the same industry have advantages because the owner and buyer speak the same language.

“There is a lot of confidence when the buyer gets their industry; gets their company and can offer a wide variety of strategic consulting,” Hurst said.

Some private equity firms prefer the seller to stay on, or for existing managers to run the business, at least in the short term, experts said.

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