Good private equity groups lose out on great deals because they shoot themselves in the foot. Are you one of these groups? Every day we see and hear private equity groups either pass on good deals or get dismissed from the process because they say or do something they shouldn’t.
Don’t belittle the transaction itself. For business owners, selling is a big deal. This is often a once in a lifetime situation for a seller. You may believe a $5MM or $10MM transaction is small, but growing the business to this size is a huge accomplishment for the seller.
Do find a way to compliment the seller. Let them know you care about their business and their customers. During a recent intro call, a buyer group interjected to commend the seller on adding a new service line, noting how smart it was to create these added customer solutions. How can you make a connection with the seller?
Don’t over offer in an Indication of Interest (“IOI”) or Letter of Intent (“LOI”) just to get to the next phase of the process. Recently, a deal fell through after a private equity buyer attempted to retrade the purchase price without a valid reason. We rejected this lower offer and the buyer missed out. Then the seller invested additional capital in outside sales (an area identified as a weakness in the CIM) which increased the company’s EBITDA by about 25% in six months. The buyer could have benefited from this growth had they closed on their original terms but instead we moved forward with a different buyer and got a higher price for the business.
Do listen for what the seller wants and structure your offer accordingly. If a seller is upfront on their ideal structure, listen and consider adjusting your “standard” model to fit their objectives. Are they looking for rollover equity? Is taking care of their management team important? Follow through with an offer that will stand out to the seller and show them you care about their goals. The number isn’t the only thing that matters, showing a seller you heard them and submitted an offer that will meet those goals will often go further than the highest dollar offer that doesn’t account for any of their other asks.
Listen first, then act.
Don’t say you have experience in a market when you don’t. The sellers can tell on calls how much you really know about their industry. To say that you have “looked” into related businesses versus operating one is a big difference. Don’t lose their trust by overstating your experience.
Use these tips to help differentiate yourself from other private equity groups pursuing the same opportunities. The best way to stand out is to listen first, then act.