Questions to ask a private equity partner when staying on after the sale

Business owners considering the sale of their company have a number of options. One buyer among those options, private equity, can offer something others typically don’t: an opportunity to retain an equity interest in the company and have an ongoing role in the operation of the business. That can be attractive to a business owner who isn’t yet ready to transition out and wants to both play a part in and realize the benefits of the future growth of the company.

“Private equity investors, typically more so than strategic buyers, place a lot of value on the desire of the business owner to continue to be involved in the company, even if that means transitioning to a more strategic role, like a chair or board member, post-closing,” says James A. Foley, a Partner at Kirtland Capital Partners.

With private equity involved, a business can accelerate its growth through access to additional capital; complimentary acquisitions; and the experience, advice, guidance and connections of the private equity partner and experienced operators who take on board positions.

Smart Business spoke with Foley about a business owner’s role with a company after a majority sale to a private equity firm.

What should owners who plan to stay look for in a firm?

Business owners know better than anyone the culture of their businesses, so they should evaluate private equity partners to find the one that best fits that culture. They should also look for a firm that has the experience and resources that best leverage the business’s strengths while addressing its weaknesses. Many private equity funds have operating resources they can bring to the table to assist management teams in the development and execution of strategic growth plans. Ask about the availability of these resources. Some private equity firms have deep pools of investors with broad industry expertise and connections who can support the management team and serve on the board of directors.

Business performance isn’t a straight line, so it’s important to understand how the private equity partner responds when times get tough. Ask potential partners about the obstacles or challenges they’ve faced with other investments, how they dealt with them and the outcomes. And get references from other business owners, CEOs and executives they have worked with and ask them how the private equity partner responded when things didn’t go as planned.

Also consider the capital resources available to the firm. There is a significant advantage to choosing a firm with a committed fund, as your private equity partner will be able to more easily provide additional capital to support the business. A business owner should understand the capacity of its private equity partner to support the business in the future with additional capital.

How can owners understand their role post-closing?

Business owners should understand how involved the private equity firm wants to be in the operations of the business post-closing. Some firms may want to insert their own executives in leadership roles while others just look to serve in an advisory role through participation on the company’s board of directors. Ask questions about what a day in the life would look like. How much support would you like to have from your partner? How frequent are check-ins? What financial information do they want to see and when do they want to see it? Have a conversation about the decisions the firm needs to be a part of and what decisions the existing management team will continue to make. Very often business owners, when they take on a new partner, don’t have a sense of that. Having that conversation can build a stronger foundation of communication and understanding.

A lot of hard work goes into building a company and establishing the culture. A financial recapitalization of the business by a private equity fund is a very important transaction — both personally for the business owner as well as in the life of the company. While price and terms are critical to the sale of the business, business owners should take the time to evaluate the fit, experience and capabilities of the potential private equity partner to better ensure the legacy of what they built and to provide a good foundation for continued growth and prosperity for all the company’s stakeholders. ●

INSIGHTS Private Equity is brought to you by Kirtland Capital Partners

James A. Foley



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