selling to a private equity firm

Planning for a business hand-off is simply part of the process when it comes to owning a company in the Intelligence and Defense industry. Exit strategies are systematic approaches to leaving a business that are designed to make for a smooth and largely predictable transition. Ideally, you will want to consult with a specially trained exit planning consultant who is able to make your business both more attractive and more valuable in the eyes of prospective buyers.

We, at High Stakes Partners, would like to take this opportunity to briefly shed light on what has proven to be one of the most popular exit strategies in today’s I&D industry, and that is selling to a private equity firm. The term “private equity” simply refers to investment organizations that have raised funds from outside investors and marshalled them into “Funds”  that can then invest in companies such as your own.   They buy shares in your company.  In the future they hope to sell those shares for more, earning their investors a good return.  Investors in Private equity  are essentially investment management companies primarily comprised of high net worth individuals (HNWIs) , Familyt Offices, and large institutions that strategically buy up companies with an eye toward making a profit. The Private Equity fund managers provide a level of abstraction for those investors by handling all the details of the individual transactions as well as the running of the companies in their portfolio.  The backend investors are not involved in those activities. After a private equity buyer purchases a business, it generally will attempt to improve the value of the business by professionalizing corporate functions such as its business development, marketing,  accounting practices, modernizing its IT, tweaking the size of its workforce, and similar methods all designed to increase enterprise value.   A strong private equity group can be a valuable partner to help you grow your company.

How do you know whether selling to a private equity buyer is the best exit strategy for you and your business? An important trend to be aware of at the outset is that private equity buyers are actively seeking to purchase small and mid-tier companies that specialize in defense and intelligence work. While some are primarily interested in short-term opportunities, others have significantly longer investment horizons and desire to acquire companies that can be grown through acquisitions. A common thread among private equity buyers in the I&D sector is a thorough understanding of the government services industry coupled with the ability to identify companies with the most profit potential.

Another thing to think about when weighing various exit strategies, and the advantages of selling to a private equity buyer in particular, is the probable direction of your business after you leave. As most private equity buyers follow a pre-determined investment strategy when acquiring a company, the buyer you choose will largely dictate how your company will operate going forward.

The following is a brief look at the various investment methods that are common among private equity buyers:

Long Term Holding

Some private equity buyers look to acquire companies with already solid income producing records and simply make them a part of their investment portfolios.

Short Term Holding

Arguably the most common strategy that is used by private equity buyers is to buy and hold a company for anywhere between three and 10 years. During this short value-building timeline, a private equity firm will attempt to achieve a short-term boost in profitability through various business restructuring methods. Often, your company will be combined with other synergistic companies in the same portfolio to build a bigger powerhouse.  Size is an incredible factor in determining the multiple paid for by any company.  By combining companies, you have an immediate bump in the value of the enterprise, beyond the linear gain.  This is one of the most important keys to helping your rolled over equity gain value quickly.  If you are interested in this subject, contact us and let us walk you through the mechanics.

Ownership Stake

If your exit strategy centers around keeping a significant stake in equity, otherwise known as skin in the game, and to continue on as a strategic leader driving the growth of your company, a private equity buyer is a good path.  The shares you keep in the new entity are usually called your “Rollover”

Contact High Stakes Partners Today

A private equity buyer can be an excellent source of quick capital whether you are looking to leave your company completely or just work less in the years leading up to retirement. As exit strategies go, however, the private equity route can be a complex undertaking that requires rigorous preparation. Contact High Stakes Partners today to start a conversation regarding the suitability of selling to private equity as an exit strategy for you.