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The April 2012 issue of Mergers & Acquisitions magazine, published by ACG, had a large article titled, “Standing Out in a Private Equity Crowd.” It was an interview and discussion with private equity (PE) people, lenders and investment banks. I pulled 11 lessons from their discussion and here they are with my comments in italics and with quotation marks where I don’t paraphrase.

  • Entrepreneurs make it happen, not PE people.
  • Relationships are key. I’ve preached this for years and it doesn’t matter if it’s a $100,000 or $40,000,000 deal.
  • Do your homework.
  • If the owner is staying post-transaction they don’t want a dictator as a partner (the buyer). And the buyer doesn’t want the seller to encourage the employees to play buyer and seller off against each other like teenagers play their parents.
  • Get the right lender for the deal.
  • “Find the deal before it finds you.” There are 200,000 companies with sales of $10-200 million, 90% are owned by the founders, many are baby boomers and within 5-10 years they will retire in droves. The business found discreetly let’s a relationship develop faster and deeper. It’s like finding out your dream house is for sale before the owner lists it.
  • Auctions (business with multiple buyers bidding the price up), valuations and the amount of leverage are all tied together.
  • “This business has absolutely gone from a gatherer business to a hunter business.”
  • “Entrepreneurs have gotten very savvy about the process of selling their businesses.” Yes, the advent of the Internet and readily available information everywhere has created smarter sellers.
  • Don’t fall in love (with the business if you’re a buyer or the buyer if you’re a seller).
  • “The relationship begins when the price is right.” And no matter how strong the relationship if the buyer lowballs the offer, trust is lost and the deal is dead.

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