Recently I was on a call with a representative of a private equity firm advising intermediaries and exit planners, such as myself, how their private equity firm looks at acquiring businesses.

When buying a business, they are looking to work with the current management and employees and see them as the next generation of leadership. That likely means that the current owner will leave the business after a short transition period. If the owner is properly prepared mentally to sell the business, the owner likely wants to move to another phase in his or her life. Also, as a practical matter, the owner has been an entrepreneur who started and ran a great business and, in some instances, may not make a good employee.

On the other hand, the buyer wants the current managers to remain with the company. A private equity firm is a professional business investor and, in most instances, will aid with things such as implementing an ERP system or making a key hire, but if the company makes widgets, they do not plan on advising on how to make a better widget. They expect that knowledge of the business and the industry is already present in the company they are acquiring.

In terms of acquisition opportunities, he said that his firm (six PE professionals) are contacted on approximately 1,000 deals a year. They are interested enough to look at approximately 200 Confidential Information Memorandums. Ultimately, they sign approximately eight letters of intent and make 3-5 acquisitions a year.

These are professional business buyers and even so, they ultimately act on less than 1% of businesses that approach them. With those odds, what is the advice to the business owners and intermediaries:

Prepare before the formal sale process starts. In the perfect world this is done before the owner thinks of selling. When you have lead time you can diversify customers, suppliers, and build talent in the company.
When the deal kicks in, you need to have several years of financials ready, understand working capital requirements, capex schedules and forecasts. Preparation moves the transaction along because the owner has two jobs: Running the company is "Job 1" so you must make the job of selling the company as easy as possible.
All in all, this is nothing different than what exit planning professionals state consistently. It does however serve as confirmation coming from the professional buying community.

Selling a business is likely never easy, but it is less difficult when you have built a transferable business. It is sometimes said that the most difficult thing a business owner ever did was start the business and right behind that is selling the business. Preparation and undertaking a formal exit planning process can go a long way towards increasing the chance of success.