Are you looking forward to partnering with a private equity (PE) firm to drive your business to the next level? Well, it’s definitely a smart move if you know how to choose the right PE partner who can be the difference between your success and failure. To help you with the decision-making, here are seven crucial factors to consider before you sign on the dotted line.
7 Factors To See in Your Ideal Private Equity Partner For Long-Term Growth
Value of Partnership
Let’s say you’re the CEO of a fast-growing health and wellness company. And you want to partner with a PE firm to fuel your next phase of expansion. How would you ensure you’re receiving a fair deal against the industry benchmark and that the partnership will align with your future vision? How would you assess and identify potential risks and missed opportunities to make an informed decision? These are important factors to consider to maximize the value of your partnership. That’s where you need an ideal consultant who can help you partner with a PE firm that has deep industry knowledge in your specific sector.
Track Record of Value Creation
If you partner with a PE firm with your industry expertise but with a history of failing to meet unrealistic growth projections for past portfolio companies, you’re setting yourself up for disappointment. Your ideal PE company could also have a history of misaligned strategies with its past portfolio companies. For instance, if the firm’s past success involved restructuring struggling companies, they might not contribute to your high-growth business. Such scenarios often result in unsuccessful exits of PE firms due to poor deal structuring and value-creation strategies. When you hire a private equity operating professional as your consultant, you mitigate these challenges with practical advice.
Operational Capabilities
If the PE firm has the right operational expertise, it can help you improve your process efficiency, reduce waste, and optimize resource allocation to help you with cost savings. If they can bring data-driven insights to the table, it will further help you attain a higher level of quality control and quicken your turnaround times. However, it’s a challenge to identify such traits in PE firms interested in your business during initial consultations. But when you take the help of a vetted PE operating consultant, you receive an in-depth evaluation of the PE firm’s operational expertise against your growth objectives and challenges.
Investment Strategy Alignment
There should be a clear alignment between your business goals and your ideal PE firm’s investment strategy. For instance, if you are looking for rapid expansion but the PE firm currently wants to focus on improving operational efficiency, this ideology conflict may lead to frustration and hinder value creation. FYI, different PE firms have their own investment styles. Some firms are inorganic growth oriented, then there are firms that focus on accelerating existing businesses, and the rest of the firms specialize in reviving struggling businesses (also known as turnaround firms). An ideal consultant who has already worked with PE firms before can help you partner with the right PE firm to drive success for both parties alike.
Cultural Fit
Why is cultural compatibility important between the PE firm and your company? Well, when there is a cultural difference, it can lead to miscommunication at various stages of the business process. There could be a cultural ego clash between the PE firm and your team. This entire scenario will lead to slow progress and missed opportunities. On the other hand, when both of you have a shared vision for the future and believe in the same core values toward achieving a common goal, it undoubtedly turns out to be a more productive partnership.
Exit Strategy
It is important to understand how your PE firm is planning to cash out of its investment. This will give you a clear picture of the viability of your long-term partnership with the PE firm. For instance, if you want to dominate the market for a very long time but the PE firm is looking for a quick IPO exit within a few years, your goals will clash. Understanding the exit strategy also gives you clarity on potential cultural shifts that will be necessary down the line. For instance, a pre-IPO-focused exit strategy will call for a stringent financial control, which might differ from your current culture. A consultant with experience in PE deals can easily help you analyze the proposed exit strategy in line with your long-term vision and negotiate terms to gain some flexibility under unforeseen market conditions.
Open Communication and Transparency
More than 60% of strategic partnerships fail because of poor communication and lack of transparency. If both parties are unaware of each other’s expectations, it can develop suspicion and erode trust with the passage of time. On the other hand, if there is clear communication, both parties identify and address problems early to prevent them from snowballing into larger issues down the line. Where does the role of a consultant become instrumental here? A consultant with experience in PE partnerships knows how to bridge communication gaps and smoothen a clear information exchange between both parties.
Hire Top 1% Vetted PE Operating Consultants For Practical Solutions
Unifai gives access to the top 1% of private equity operating professionals with extensive experience of working within PE firms themselves. They can quickly guide you through shortlisting PE firms based on industry experience, track record of value creation, operational capabilities, investment strategy alignment, and more. Rest assured to get support for deal terms and maximize the value of your collaboration with private equity operating executives and industry leaders.
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