How to Buy a Business: Why You Should Partner with a Private Equity Firm
Buying a business is tougher than it looks. Take it from us. As a private equity firm, we’re in the business of buying businesses. There’s so much that goes into buying a business, from contract negotiations to due diligence to building a leadership team, you name it. If you’re in the market to buy a business, you’ll want to partner with a team of trusted professionals to help get your dream of becoming a business owner on track and across the finish line.
In this article, you’ll learn why prospective business owners should partner with a private equity firm and how to prepare for that partnership.
Top 5 Reasons to Partner with a Private Equity Firm
Increase your Access to Capital. A lot of people can get a loan and buy a business that generates $5 million in revenue or less. However, align yourself with a private equity firm, and you’ll open the door to investing in a more sizable company that will ultimately lead to a far more favorable return on investment.
Build your Network. Buying a business is a mountainous challenge; no one should have to go it alone. When you partner with a private equity firm, you not only get their team, you also get access to their network including mergers and acquisitions lawyers, deal sources, investors, financial advisors, industry experts, and more. With a wealth of expert knowledge at your fingertips, you’ll be empowered to make informed decisions when it means getting down to business.
Access to Deals. As an aspiring business owner, your focus should be on finding healthy proprietary deals. By “healthy,” we mean that not only should the business have a forecast for longevity with high-quality management in place, it should be a good fit for you in regards to your industry experience. With your private equity firm tackling all the complex behind-the-scenes tasks, you’re free to invest your time and energy into sourcing possible acquisitions. And since you have access to more capital, you can increase the size range of the businesses you’re exploring.
Collaboration for a Growth Strategy. Now that you’re a business owner, implementing thoughtful strategies will be key to maintaining and growing the company. Your private equity partner can offer advice, resources, and experience to help you embark on an upward trajectory.
Long Term Support. It’s lonely at the top. We’ve worked with enough CEOs, CFOs, COOs, etc. to know that for a fact. When you partner with a private equity firm, the network that supported you in getting the deal done is there to help you plan for after the acquisition, because now that you own a business, your work has just begun. At Borgman Capital, we hold virtual roundtable discussions for our CEOs and CFOs where they can discuss challenges, share ideas, and build relationships. This also allows the Borgman team to offer assistance where needed from making connections or doing analysis. Because we know that having a support network - no matter where you are in your entrepreneurial journey - is vital to your business’ success.
Stand Out in a Crowd
Aligning yourself with a private equity firm will not only help you buy a larger, more scalable business than you could likely acquire on your own; they’ll get you better access to better deals, connect you with important resources, provide long-term support, and help facilitate a growth strategy. Private equity firms get a lot of inquiries from mid-level executives who want to buy a business. If you want to stand out in the crowd, make sure you have all your ducks in a row before contacting your potential private equity partner.
For more guidance on how to identify the right private equity partner, read our article: How to Ensure a Smooth Business Transition: Five Must-Have Characteristics of a Good Private Equity Firm.
3 Things to Do Before Partnering with a Private Equity Firm
Prepare your Investment Thesis. This is a written document detailing your recommendations for a new investment based on research and analysis of potential profit. Essentially, it’s a pitch wherein you answer the questions: How will I add value to the business? How does my background align with the business? What will I do to grow the business? A successful investment thesis will result in the PE firm recognizing the value you bring to the table.
Lead with Experience. Parallel industry and leadership experience are key attributes a PE firm will be looking for in a business owner. If you had a twenty-year career in the cheese industry, for example, you may look at purchasing a cheese company, or at least a food company. Having leadership and industry experience will add to a PE firm’s vote of confidence in your ability to effectively run and grow the business after they help you purchase it.
Be an Entrepreneur. This might seem like a given, but trust us, it isn’t. Not everyone is cut out to be an entrepreneur. In order to be a business owner, you have to be a calculating risk-taker first. You have to be willing to invest in the business and put your livelihood and net worth on the line. Because if you’re not willing to take the risk, no one else is going to take a chance on you.
A Valued Partnership
The most obvious determinant of partnering with a private equity firm is the fact that it’s a partnership. Which means you, the business owner, will not own 100% of the company.
However, there’s great value in that percentage you’re investing with your PE firm; so much so that the value of the percentage you do own could equate to more than what you would have owned at 100% if you’d assumed the undertaking alone. If you are successful and committed full-time, the road to fruition will take approximately 12 to 24 months.
Thrive With Us
Before you buy a business and accept responsibility for people’s livelihoods, make sure you have a trusted private equity partner who can provide you with the resources and support you’ll need to be successful.
At Borgman Capital, we believe in building authentic relationships with our investment partners, business owners, and everyone in our vast network. Contact us today to learn how we can help you achieve your dream of owning your own business.