Does anyone have experience buying a business with a PE partner?
May 16, 2023
by a lender in Las Vegas, NV, USA
I am very new to the entrepreneurship through acquisition game and I want to learn more about partnering with a PE group on a business acquisition. I don’t have much money starting out so i wanted to partner with a strategic group to provide some equity and some guidance. Is this a common path people take? And what’s it like partnering with a private equity group when buying a business. Any feedback helps. Thanks!
from Gonzaga University in Denver, CO, USA
That being said, whether or not you have experience in the industry of the company you are targeting, if you can bring a proprietary deal to a PE that will often be of value. Larger PEs especially struggle to find lower middle market deal flow and if you come as the independent sponsor with the deal (make sure you have a LOI signed so they cannot go around you to engage the target), relationship with seller, and some of the initial diligence / story sorted out you can be a valuable partner to them.
from State University of New York (SUNY) in Buffalo, NY, USA
Even if you operate the business I’d expect you would get <10% of the upside. Remember that the PE group typically takes 20% of the upside in a deal. In a standard PE deal, 10% of the equity is reserved for management options, which you would be eligible for if you have the right experience. If you go to a traditional PE group and ask for 70% of the upside like some get in self-funded search deals they will likely dismiss you.
Depending on the size of the deal you want to do you should connect with traditional search fund or self-funded search investors. There are lists available online with some digging. They understand the model and will be more searcher friendly than PE.