What I wish I knew before selling my company to a private equity firm

Lessons I learned during and after the sale of my business to a private equity firm.

by Rodolfo Gari:

When selling your business first perform a thorough search for investment Bankers, Law Firms, and Reputable big four accounting firms. Find those that are most suitable for your industry and the size of your company. You will encounter both financial buyers (looking for pure returns) and strategic buyers (looking for returns plus synergy). Since Strategic Buyers normally will make a higher profit from buying your company, they will likewise be willing to also pay a higher price than the financial buyer.

The professional team that you form to help sell your company will prove instrumental when it comes time to close the deal, and just as important , after the deal. The link below is to a newspaper article that highlights pitfalls that I encountered after the sale of my business. It references a case Rodolfo Gari vs HIG Capital, HIG Capital middle markets;

http://www.tampabay.com/news/business/faced-with-83-million-bill-tampa-doctor-confronts-investment-firm/1199044

Often, the terms of the sale and the indemnification terms are just as important, if not more important, than the price of your company.

Clawbacks, or the buyer wanting more money from you post sale, are common in the private equity business and some private equity firms have a notorious reputation for claw backs. Get references on who those companies are. Find out if they have been involved in litigation with the seller post closing.

There are also personal issues to consider. When I sold my business many people told me that this would be a life changing event. Your family should prepare for this as well, as it will affect them as much as it will affect you.

Going from working eighty hours a week to not having to set your alarm clock is definitely a life changing event.

Resist the urge to invest in everything that comes your way. As the word spreads of your sale there will not be a shortage of financial advisors wanting to invest your money, for a fee of course.

After the sale, put your money in treasury bills for at least three months. Take yourself and your family and loved ones on that much needed vacation. Take this time to do things that you have been putting off for much too long. keep in mind that you are an entrepreneur and, like me, you will come back to do something again.

No matter how much time you spend on your purchase agreement prepare yourself for battle even after the sale, no matter how profitable your company might be to the buyer. Like me, you will wonder why, until you realize it's the nature of the business. We all know the fable of the scorpion crossing the river and then stinging the frog even after knowing that they will both die. It's the scorpion's nature. When it comes to selling your business, pitfalls, unfortunately, seems to also be the nature of the business.

In summary:

Private Equity Firms are experts at buying companies. They have tremendous resources and experience in buying companies. To balance this, due diligence on the private equity firm is extremely important. Get your team ready and get the best that you can afford:

Investment banker

Law Firm

Accounting Firm

Good luck

Rodolfo Gari MD MBA