On behalf of our clients, what we want to be able to do is understand how to present their business in the best light possible to the Private Equity Group (PEG) . What are the strengths and weaknesses of the business so that we can position it in order to have a successful outcome? Our task in representing our clients is to obtain the best valuation and best structure possible. PEGs see thousands of deals per year. What is it they are looking for because they are going to make a decision based on a one to five page summary of whether they are going to proceed or not? There is a very narrow window to get their attention. More often than not the person getting that teaser is not one of the founding or general managers of the firm who is ultimately making the decision. So the gatekeeper is basing it off of their experience up to that time, their interpretation of what the investment rules or criteria are of the business. You have to get through the gatekeeper.
Then he or she brings it to a partner or someone else who would lead the transaction and at that point they would decide wrong sector right business model or whatever. Then it’s going be presented to the rest of the team on Monday morning. Then somebody in that room may say “oh I did one of those ten years ago, I hate that industry or I hate that business model or we would never do one of those, I lost money in those, or hey a friend of mine runs one of those you should talk to him.” Maybe everybody says “I love it” and you get into the peeling back the onion on the diligence process. At each one of those steps there is decision making and as you get closer and closer to closing the risk level increases because you are getting closer to lots of money changing hands and you are getting further away from the people you were speaking to at the beginning of the process. It’s harder to go back to them. Some things you never discussed at the beginning start getting discussed at the end. So you have got all this very tense rapidly moving and often shifting landscape that you are trying to manage.
Managing the process is critical. For a discussion of some of the issues inherent to PEG review of potential investments between a Managing Partner of a PEG, Devin Matthews of Chicago Growth Partners, and a Principal of CFAW, David Sinyard, please go to: http://www.pefuncast.com/podcasts/.
Posted by David Sinyard.