What Do Private Equity Firms Focus on When Making Acquisitions?

By Generational Equity


Recently Axial published a very interesting insider’s view on key features private equity firms focus on when examining companies for investment. The results of their survey of some leading players in the PE field were enlightening. I thought I would share their findings with you, since many of our readers are going to eventually be sitting down across the table from an equity firm.

Here are some responses they received:

Gretchen Perkins, Huron Capital Partners – The #1 thing we consider when evaluating a potential investment is ‘How can we grow it?’ This encompasses many things — industry and trends, size of market, existence of qualified add-on candidates, etc., but most important in our assessment of our growth possibilities is the quality of the human capital.

Brent Beshore, adventur.es – Our first consideration is always the people involved. We want to understand their situation, motivations, and life philosophies, and how those things have impacted company culture.

Eric Mattson, Excellere Partners – We certainly evaluate the financial health of the business, but we also assess the macro-market, the customer stability, the quality of management team, and a host of other key data points.

Jordan Bastable, LongWater Opportunities – “The #1 thing I consider when evaluating a business is the integrity and capability of the management team.

Brandon Hinkle, Chicago Capital Partners – Sustainability is concern #1 for me. Technology, customers, management, competitive advantages, industry nuances, cash flow… how sustainable are all these things in this ever-changing world?

Now each of these responses vary from one person to another, however, the common underlying theme that I see in each is this: How can we determine the level of risk associated with this investment opportunity?

By its very nature, investing in any privately held company carries a certain level of risk. Unlike their publicly held brethren, private businesses are not required to release quarterly and annual statements to the investing public, and much of the business they conduct is highly proprietary given the competitive nature of most industries.

Having said that, the reality is the more “sustainable” your business model is, the lower the risk associated with your projections and thus, the higher probability that a PE firm will not only be interested in the opportunity to partner with you, but they may even pay a premium based on their modeling.

If you are interested in learning more about what all buyer types are looking for, you should set aside a few hours and attend a Generational Equity executive exit planning conference. We hold these throughout North America and they are designed to educate business owners on how and when to exit their businesses for maximum value. The reality is if you don’t have the information you need to understand how buyers operate, you are placing yourself and your business at a disadvantage when buyers eventually approach you.

To learn more about our conferences and about our services to business owners, please access the following links:

And special thanks to Axial and the five leading PE players who participated in this interview. We appreciate the insight that they provided about what private equity firms are looking for in their investment opportunities.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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