There are a number of different types of buyers out there who might be interested in acquiring your company. These different types of buyers generally have different plans on what they tend to do with your business upon acquisition, the degree of control they intend to exert, and how long they might be involved with your company. Here are the main categories:
PE — Private Equity firms exist to acquire, manage, and sell companies. This industry has really grown in the past few years, to the point where these firms now have around $1 trillion in ‘dry powder’, money from investors that is waiting to be spent on acquisitions. They tend to use large amounts of debt — often well above 50% of purchase price — which further increases their buying power. PE firms make money for their investors by following a three-part process: buy, change, and sell. They buy firms at reasonable valuations, change the companies through restructuring or reorganization to enhance profitability and pay down the debt, and sell the firms at a profit. Most of their investments come in the form of 10-year funds, so the average holding period for a firm is around 4 years. Historically, these firms have done well for their investors, which is why they have all that dry powder.
Fundless Sponsors — These are smaller organizations that lack dedicated capital. These firms have relationships with investors, whom they go back to on a deal-by-deal basis. Some might find it more difficult to make an acquisition because they have to put together a group of investors to make a deal happen, but once they make an acquisition, they have a similar playbook to that employed by PE firms.
Family Offices — A family office is a privately held company that handles investment and wealth management for a high net worth individual, family, or group of families. In the past, most have made their investments through other managers; however, some family offices are now making direct investments in assets such as businesses. While they tend to be more passive than other investors and offer the opportunity of holding on to companies for a longer period of time, there is a large degree of variance among them — no two are the same.
Strategics — Strategic investors are larger companies in a given industry whose leaders are interested in extending their business to a new market, product, or service or to buy out a competitor. They are making their investment to strengthen their strategic position and are often willing to pay a higher price than other buyers. However, it is important to know that there is a high likelihood that the acquired company will change dramatically. Brands are often subsumed and in some cases firms are even fully dismantled in order to clear out the competition.
Holding Companies — Holding companies do not sell any products or services themselves; instead, they exist for the sole purpose of owning other companies. Warren Buffett’s Berkshire Hathaway is an example of such a company. Holding companies usually acquire larger companies, and the acquired companies tend to remain relatively intact.
Employees — An employee-stock ownership plan (ESOP) will gradually transfer the company’s equity into retirement packages for a firm’s employees. ESOPs provide employees with valuable measures of input and control, but they also add administrative hurdles that can slow future development.
Children — Business owners can also sell their company to their children. This occurs more frequently in smaller companies and has the great benefit of keeping the business in the family.
Eagle Peak Capital Partners is different. It is managed by an entrepreneur seeking to acquire and manage one single company, and it is backed by a talented group of experienced operators interested in helping the company reach its full potential. It is a great match for owners seeking to reduce their role or retire, but who are also interested in preserving their legacy and existing company culture. If you are interested in a partnership, please send me an e-mail: rknauer@eaglepeakcap.com. Thanks!
Further Reading