family-business-succession-planning

Private equity firms have been making waves in various industries, from healthcare to technology and even sports. While private equity (PE) for a growth, succession or exit strategy may seem appealing due to the potential for high returns and the various options it offers as a business owner, it is crucial to understand the unexpected outcomes that may impact your business vision and goals.

Pros and Cons of Private Equity Partnership

PE firms can be great financial partners for a business seeking expansion. They can provide the necessary resources for growth or succession strategy, but it’s crucial to thoroughly understand the terms of engagement before committing to a PE partnership. Establishing the right partnership regarding your objectives and having a clear exit strategy is essential.

When considering a PE partnership, it is important to decide how much control you are willing to give up and how involved you want to be in the company. Any new partner means more people involved in making decisions, so a solid relationship or employment agreement is crucial. Remember that PE firms are only interested in return on investment.

Private Equity as a Succession Planning Strategy

PE firms can also provide an exit strategy for a business owner. As time passes, consumer behavior, limiting legislation, and developing technology can impact a business’s ability to remain competitive. Additional challenges may arise for those running a family business, such as sibling rivalries, multiple stockholders, conflicting expectations, and commitment levels.

PE can facilitate an exit strategy if the owner is ready to move on, but it’s important to note that the advantages of ownership may pale compared to the profits of a sale. PE can provide liquidity, but it’s crucial to consider factors such as the treatment of key partners and management, the impact on employees and company culture, and the compatibility of the buyer with the company culture.

PE’s Lack of Industry Understanding

PE firms are generally unfamiliar with the specific industry nuances and their workings. They conduct business through frontmen who sell the market’s potential profits to PE investors. Real investors are often represented by intelligent, competitive brokers or consolidators, but these “fronters” only have their interests in mind.

Consider the Long-Term Impact

Whether you want to grow and sell or create a long-term family asset, partnering with a private equity firm creates many unintended consequences. It’s crucial to understand the potential impediments to fulfill your long-term vision brought on by PE. While PE can be a great source of liquidity, it’s important to consider the long-term impact and resist giving up what may seem like immediate liquidity.

Private equity can be an attractive option for those seeking expansion or an exit strategy. However, it’s essential to thoroughly understand the terms of engagement and to consider the potential impact on your business vision, employees, and company culture. Make sure you establish the right partnership and have a clear exit strategy and resist the temptation to give up control and long-term stability for immediate liquidity.

How We Help You

Are you struggling to evaluate and navigate the complexities of partnering with private equity firms? From understanding the pros and cons to weighing the long-term impact on your business vision and goals, it’s crucial to have the right guidance and insights. Our team can help you navigate these challenges and make informed decisions that align with your objectives.

Contact us today, and let us give you the insights and resources you need to assess whether partnering with a private equity firm is right for your business, exit, and succession strategy. In just 30 minutes, you can gain valuable ideas and perspectives to apply immediately to your business strategy. Don’t let uncertainty hold you back – reach out to us, and let’s explore how we can work together to achieve your goals.

The article was initially published on Franchising.com: Private Equity Could Impact Your Purpose and Future Business Vision.



Personal Financial Planning

Estate planning is a complex endeavor, especially for owners of capital-intensive complex business’. Throw active and inactive family into the mix and trying to figure out what is fair, how to provide opportunities for the next generation without enabling them, and maintain family harmony.

Click the following link for more drill-down resources on Personal Financial Planning.

In complex family and business environments, it is imperative to lean on expert legal and tax advice who specialize in the same size business and estate as you.  We are not attorneys or CPAs but know experienced advisers if you are looking for sophisticated advisory services.

Sign up for our monthly e-newsletter to stay informed on how to overcome related succession planning issues.

We can provide insights and other resources and assess whether it makes sense to work together. In just 30 minutes, you may gain actionable ideas that you can immediately apply to your business. Contact us via phone or email below, or fill out the “Ask An Expert” form.