Inc. Magazine - 4 Tips For Selling Your Company To The Right Private Equity Firm
Done well, selling to private equity can breathe new life into a company ready to grow and scale.
Greice Murphy, an Entrepreneurs' Organization (EO) member in Atlanta, founded Advanced Care Partners (ACP) in 2010 to raise the quality of home care nursing services for medically fragile children in the U.S. Southeast. Greice led ACP as its CEO from inception until June 2021. During her leadership, ACP grew at an annual rate of 40 to 50 percent, becoming one of the few U.S. companies to make the Inc. 5000 list six years in a row. In 2018, faced with the challenge of managing continued growth, Greice knew it was time to consider options to scale her business further. Below, she shares how she successfully sold majority ownership of her company to a private equity firm.
Understand Your "Why"
Before starting this journey, it is vital to understand your motivation. This will help you list the criteria you want in a partner who is aligned with your end goals.
In my case, ACP was highly profitable and growing rapidly. However, I knew that expanding beyond the U.S. Southeast required bandwidth that I didn't have. My priority was to protect the culture of excellence and care we established with patients and employees. For that reason, I looked for a partner that had experience with high-growth companies in healthcare, aligned with my values, and a track record of working collaboratively with the executive team.
Your "why" will help you pinpoint financial and operational goals:
Do you want to sell 100 percent of the company and walk away?
Do you want to sell a portion or majority interest?
Do you want to keep working for the company? For how long?
Tip: Whether this is your first or fifth exit, surrounding yourself with a capable team early on makes all the difference. Your team may include a CPA, M&A attorney, investment banker, and certified exit planning advisor to help guide the process.
Know Your Numbers and Prepare Thoroughly
Building ACP from the ground up was a labor of love. As a result, I wasn't interested in companies that immediately asked about our financial performance. I wanted a partner that would genuinely care about our patients and people.
That being said, questions about our financials were never long to come! Indeed, they provide prospective buyers with a snapshot of your business' financial health and potential value.
It's critical to get your financial records in order. Thorough preparation before "going to market" can increase your valuation by 20 to 25 percent. Prepare your financial statements and projections, and know the answer to the following questions:
Does your business have any liability issues or undisclosed risks that can impact its value?
What is the relative growth in gross sales and net income?
How many customers do you have? What is their relative size?
To position your company in the best possible light, consider paying down debt or cashing out minority shareholders. Even if you don't need to make any substantive changes, make sure your books are in order.
Tip: Selling a business is stressful and time-consuming. Be transparent with your team about "why" you want to sell, and don't lose focus on key financial goals and KPIs during the due diligence process.
Field Offers from Potential Buyers
Do your due diligence on potential buyers--how will they help you grow and scale?
Ask the following questions about prospective buyers:
Where specifically can they help you and your business?
After closing, how does the buyer get involved in company operations and decisions?
How does the buyer select the board? What say will you have in the process?
What operational changes should you expect?
Tip: Validate both the network and reputation of potential buyers. Ask them for introductions to see if they can execute against their connections. Search for online reviews, performance of previous acquisitions, and the opinion of other private equity firms.
Close and Inspire
Once the buyer is ready to move forward, there are many legal considerations when selling a business, including the purchase and operating agreement, legal contract for the sale, and the purchase of business assets. Ensure that the terms that matter to you are properly transcribed in the agreements and your role is well defined.
Finally, when it is all set and done, share the news with employees, customers, and other key stakeholders. This step cannot be overlooked as it can position the company for success or failure.
Tip: Create a communication plan with FAQs before releasing the news. Craft the message to show you have your stakeholders' best interest at heart. Share the inspiration behind the sale. Tell your employees, customers, and vendors how much they mean to you, and that you've carefully selected a partner who shares this outlook. This is a unique opportunity to breathe new life into the business by bringing a new outlook, new skillset, and new opportunities for all.