There’s $2.2 trillion in private equity deals expected this year– $821 B of them in the United States alone. Law firm Duane Morris recently assembled a panel of experienced investors and strategic buyers for a symposium on this year’s private equity outlook.
Joseph Ibrahim of Riverside, a global private equity investment firm which discovers the next generation of medical technologies and devices, was one of the panelist. He plans another 40 investments globally in 2012. “We look worldwide for the right opportunities to grow the company,” he says.
Joseph counsels, “Positioning your company for a sale can take a couple years if you do it right. Think about it before the exit, and build that story from the beginning—it’s money well spent.”
As you create your legend, Joseph suggests focusing on why your company is special or unusual—it can drive good valuation and make you easier to desire. If you are one of several firms just like you, then you open yourself to price pressure at the closing table. This is the intersection of storytelling (or public relations) and sales–your story is an intrinsic part of your sales strategy.
Like Riverside, Roark Capital is looking for new acquisitions. The investment firm’s platform companies include GFL and Wastepro.
Robert Bryant of Roark said he expects to find more opportunities to acquire companies this 2nd and 3rd quarter—maybe even restaurants. The pace at which investment companies roll up other firms is another item for companies to be aware of when looking for the right investment partner. Richard Kahlbaugh, Chairman of the Board at Fortegra Financial, worked with Summit Partners when structuring Fortegra’s IPO a few years ago. He commented that knowing when to join an investment fund was critical in giving his company the mentorship and time it needed. “When you join too late in a fund, the investment team may have to do something dramatic to exit, and that isn’t usually good for your operation.”
Give your story great characters
All of the investors, whether with private equity or with strategic buyers, focus on the strength of the management team when evaluating acquisitions.
“For us, says Joseph, “it’s all about the management team. We can augment, but that is not our preference.” He explains that Riverside keeps their eventual customer in mind. “We will sell it in 3-5 years, so our customer is further out—that’s how we evaluate the opportunity, as it looks to us 10-15 years down the line.”
Says Steve Voorhees of Rockten, “If the management team is not strong, it’s very problematic. The general managers are a big part of the solution—the assets end up being a function of how well they are managed.” Robert Bryant with Roark also mentioned they prefer to back an existing, functioning team, although Roark does have experience backing existing entrepreneurs in environmental services.
Steve also commented that “structuring a deal and doing the financial analysis and tax implications up front can be absolutely critical in getting deals over the goal line.” He also likes to see financial analysis done early and done right.
Also on the panel was Ronald Chang, who acquires companies for UPS. “The two things that scare me the most about a potential acquisition are when one person knows everything, like the founder, or when a firm only has only one truly outstanding sales person. In either of these situations, UPS is generally not interested.”
Ron shared his advice for companies that want to sell—engage an advisor or investment bank to help work through reasonable expectations of value.
“EBITDA is not as important, because we will be integrating them into an existing business.” He points out that for UPS to conduct due diligence can easily cost from $500,000 to $1M, so it takes a substantial minimum deal size to justify the consideration costs.
All that said, what really gets Big Brown moving is current customer demand. If UPS needs a technology to protect its customer base from a competitor, that’s a big driver for strategic acquisitions, he commented.
Focus on a clear financial plot
Besides a sound management team and stable sales engine, overall financial performance is high on all of these deal-makers lists.
“The last thing you want to see on an acquisition is roller coaster earnings. Everyone’s projections all look surprising similar: the hockey stick. But history reveals all,” says Ron.
Carefully edit your IP
The final hot button for all of the investors on the panel was owning intellectual property. “You just can’t buy what you don’t own,” said one of the panelists, pointing out that he sees too many potential deals where the companies “don’t even own their own trademark.”