Finding the Right Fit with Private Equity

Every business owner wants the perfect fit when it comes to finding a buyer or growth partner. While financial considerations are important, chemistry between the founder and private equity group may be the most crucial indicator of a successful partnership.

We spoke with Whitney Krutulis, Director of Business Development at Sterling Partners in Chicago, to get her take on cultural, talent, and price considerations for business owners who are considering bringing on a private equity partner.

Culture

“Culture is one of those precious intangibles that’s incredibly important to both owners and employees,” says Krutulis. “Any firm can say that they respect and appreciate culture, but sellers should look for a firm that walks the talk.”

Observe potential partners closely during the courting and diligence processes. If you own a company that requires constant employee interaction, make sure when taking a tour of your potential partner’s office that their employees are interacting with one another. It’s important your company and partner understand how each company functions and that they complement one another. Compatibility can be elusive and hard to quantify, but you might observe them when visiting the firm’s office, during meals or outings, and even on the phone.

Talent

As the owner, you will have to make agreements about how management will be structured, and finding a firm that will be flexible is important. While some firms will only enter into a partnership if they can replace the management team, others will be consultative in their approach to supporting the existing team. “No matter how great an existing business is, bringing the right people—and the right combination of people—to the table can really move the needle,” says Krutulis. “Sellers should look for a firm with a dedicated talent function and a deep network of executives and advisors.”

Price

As your list narrows, you’ll likely see fairly consistent valuations from potential firms. However, some firms may present a high price that they’ll trade down the line in an effort to stand out. “Sellers should look for firms who are honest and upfront about their valuations and won’t throw out ridiculous bids just to get to the next round,” says Krutulis.

Working with an investment bank can help you avoid these potential surprises and hiccups.

Evaluating Character

“While it may seem obvious that sellers should seek good and honest partners, it’s easier said than done,” says Krutulis. “Character can be difficult to assess, especially in a formal process.”

One strategy is to write down how you want the process to go and what your ideal outcome is after an agreement is signed. This gives you a constant mission statement to refer back to when questions arise. It’s unfortunately true that most business owners learn their preferences after a less-than-stellar courting process, so speaking with peers who can offer advice and observances helps, too.

Entering into a private equity partnership is one of the most important decisions you will ever make for your business. It usually only happens once, so don’t try to rush it. Keeping a keen eye and ear out for signs of strong culture fit can steer a business owner from a good partnership to a great one.