Last month, Forbes M&A was pleased to lead a panel of business owners and a private executive who shared their experiences with using private equity investments to exit businesses in 2 stages. This strategy, called Two Bites at the Apple, is an increasingly popular approach to solving some common business problems and, gauging by the audience’s reaction, is a topic many business owners want to know more about.
Bob Forbes, President and Founder of Forbes M&A, kicked off the program by giving some context to the private equity industry. According to PitchBook Research, approximately $350 billion in private equity is available to businesses. Bob also shared that 6-7% of all merger and acquisition activity involves private equity funds. To dissuade some of the misperceptions of working with private equity, three panelists went on to share their in-the-trenches business experiences.
Todd Padgett, CFO of Novus Biologicals, began by explaining how increased domestic competition was creating a need for a European office. However, neither he nor his wife had experience with international expansion. So, rather than financing a risky global venture by borrowing against their personal finances, they sold 60% of the company to a larger and better capitalized private equity firm, Mainsail Partners. With this move, Padgett was able to sustain the company’s growth, gain expertise with European operations and reduce personal risk through asset diversification.
The other business owner panelist, Larry Meadows, also explained how he was able to diversify his assets by selling a large portion of his business, American Exteriors, to Progress Equity. With this decision, he remained involved with the company as a high-level board member, but could also stop reinvesting all his net worth into the business.
However, as both businessmen explained, even with the right partners and the right advisors, selling a portion of the business can have be a difficult process. In fact, Padgett openly shared with the audience the time he kept his kids from trick-or-treating on Halloween night while he haggled over the aspects of the negotiations.
Representing the private equity side of the deal was panelist Scott Friar, Vice President at Excellere Partners. He did a great job of describing how the transaction works and why it can be so successful for owners. “Picking the right private equity partner is extremely important,” said Friar. “At Excellere, for example, we take a collaborative approach to sit down with the board and management team to figure out together what is the best move for the business.”
In conclusion, Forbes made a point to explain that private equity groups are interested in investing in all size companies. “Owners are under the misperception that private equity groups are only interested when the EBITA is $4 million or above,” said Forbes. “As these panelists demonstrated, that is simply not the case. Experienced M&A advisors can put compelling private equity deals together for mid range businesses as well.”
Audience feedback from the seminar confirmed that all three panelists did a terrific job providing a clear picture of the benefits and challenges of a two-bite private equity deal. For more information about these types of transactions or other exit strategies, visit www.ForbesMA.com or call 1-303-770-6017.