Would You Sell Your Family Business to a Private Equity Firm?

By Rich Bond

This week, a featured article in The Wall Street Journal (“Who Will Inherit the Family Business? Often, It’s Private Equity”) said that private equity firms are snapping up family businesses of all sorts. Owners who are near retirement and have no family members who want to take over are becoming more willing to entertain the sale, particularly if they can stay on managing the business for a few more years.

The PE firms will often use financial levers that the owners never touched to unleash new levels of profit and growth. While it is true the PE firms often use tools that most firms wouldn’t have considered, it should also be pointed out that before a purchase, PE firms require a huge amount of financial information that most privately owned companies don’t keep. The PE firms also normally require a track record of consistent increases in sales and profits.

If a family business is potentially looking to sell to a PE firm, they will normally need at least two years to start to increase the amount of financial information they track and make a concerted effort to generate consistent growth. They may need to replace their lead financial person or hire someone additional to start to put together the information the PE firms will be looking for, if they are to be seriously considered as a great opportunity for acquisition.

I have worked with owners who sold to PE. If you want to discuss how best to position your business or what type of financial person can help you get ready, email me at Richard.Bond@bondandcompany.com.

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