Selling To Private Equity: Top 12 Questions To Ask Your Potential Acquirer

When a private equity (PE) firm expresses interest in acquiring your company, which typically involves a rollover of a portion of the seller’s equity into the new entity, it’s crucial to ask questions that will help you understand the implications of this transaction for you, your company, and its other stakeholders. When considering a sale to a PE firm that includes a rollover of equity, you should think of the transaction as a partnership moving forward (although heavily weighted in the PE firm’s direction).


Top 12 Questions To Ask Your Potential Acquirer And Partner

1. What is your investment strategy and typical hold period for investments? This will give you an idea of their objectives and expected timeline.

2. What investment returns are you targeting? This gives you insight into their growth expectations.

3. How much of the purchase will be financed with debt versus equity? More debt increases risk (but maybe more potential return to the seller on the second bite).

4. What level of management involvement will you have in the day-to-day operations? PE firms vary in how much involvement the seller is expected to undertake post-closing.

5. What are your plans for future growth of the company?

6. What are your plans for existing management and employees? Will the current team be retained?

7. What is the process and timeline for completing the transaction? Make sure you understand the full process.

8. How will you value the company? How will you value my equity rollover? Make sure it is valued fairly compared to the purchase price.

9. Will there be an Earnout?

10. What resources do you bring to the table to support growth? Is there a synergy with the transaction (e.g. access to networks/capital etc.)?

11. What information rights will you have related to your rollover equity?

12. Can you provide references from other companies you’ve acquired?


Set Your Objectives & Expectations

The most important question is number 12 – getting a reference. Typically PE firms have large law firms that represent them and the deal process can come off harsh. We’ve seen it both ways where the PE principals are easy going during the deal process, but hard to deal with post-acquisition, and vice versa. References are the best way to determine what it will be like working with the PE firm post-acquisition and especially if you can get a reference from a company that didn’t meet expectations. It’s beneficial to approach these discussions with a clear understanding of your objectives and expectations for the transaction and to understand the PE firm’s objectives and goals for the transaction and post-closing operations.


Considering a Sale to Private Equity? Get the Legal Advice You Need.

At Doida Crow Legal, we are here to assist you with your M&A transactions. Using our business law experience and unique industry insights, we can help you stay on the right course throughout the deal process. To schedule a no-obligation consultation, call us at 720.306.1001.

This article provides a broad overview and is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.

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