Is Private Equity All That It's Cracked Up to Be?

Private equity has become an increasingly popular exit option for founders looking to sell their businesses. However, with headlines often highlighting both spectacular successes and notable failures, many entrepreneurs find themselves wondering whether PE is truly the right path forward. Let's dive deeper into what makes for a successful PE partnership and why finding the right fit is crucial.

The Promise of Private Equity

When we strip away the financial jargon and complex deal structures, private equity firms essentially promise to help good businesses become great through strategic investment, operational expertise, and industry consolidation. For founders who have built successful companies but see untapped potential, this proposition can be extremely attractive.

The Critical Role of Relationships

What often gets overlooked in discussions about PE deals is the fundamental importance of relationships. The success of a PE partnership frequently hinges on three key relationship dynamics:

The Founder-Operating Advisor Dynamic

The relationship between a founder and the PE firm's operating advisor is perhaps the most crucial element in post-acquisition success. This advisor typically becomes the founder's primary point of contact with the PE firm and serves as both mentor and partner in driving growth initiatives. The chemistry and alignment between these two parties can make or break the implementation of strategic changes.

Founder-to-Founder Relationships in Roll-ups

In roll-up scenarios, where multiple companies are combined under one umbrella, the dynamics between founders become increasingly important. Each founder brings their own vision, culture, and way of doing things. Success often depends on these founders finding common ground and working collaboratively rather than competitively. The best PE firms excel at facilitating these relationships and creating an environment where multiple founders can thrive together.

Functional Leadership Alignment

Another often-overlooked aspect is the importance of alignment among functional leaders across combined entities. Whether it's sales, operations, technology, or finance, these leaders need to work cohesively to achieve the PE firm's growth objectives. The way these relationships are structured and managed can significantly impact the success of integration efforts.

The Intermediary Challenge

One of the biggest obstacles in finding the right PE partner is the role of intermediaries. While investment bankers and other middlemen serve an important function in the deal process, they can sometimes create an artificial barrier between founders and PE firms. This can make it difficult to assess cultural fit and alignment on vision before getting deep into the deal process.

Salmela works closely with a dozen PE firms to overcome this obstacle. Our core function, talent acquisition and assessment helps us intuitively understand cultural fit with the founder to founder and founder to PE firm relationships.? Understanding the acquiring and being acquired companies' cultures, functional expertise, goals and needs are at the core of our success as an M&A advisor. Our deep understanding of the buyer-side objectives help sell-side founders cut to the heart of each deal we bring to the table for a sell-side founder, coming to a quicker understanding how their company will fit in a roll-up or as a platform company.?

Making PE Work for You

Despite these challenges, private equity can indeed be "all that it's cracked up to be" - but only with the right partner. Here's what founders should consider:

1. Look beyond the financials to assess cultural alignment and shared vision for the business.
2. Spend time getting to know the operating team, not just the deal team.
3. If possible, connect directly with other founders in the PE firm's portfolio.
4. Understand how the PE firm approaches functional integration in roll-up scenarios.
5. Be clear about your desired level of involvement post-transaction.

Conclusion

Private equity firms and their approach to value creation can indeed be an excellent fit for founders looking to sell their businesses. The key lies not in whether PE as a whole is good or bad, but in finding the right partner who aligns with your vision and values. While intermediaries may sometimes complicate the process of finding this fit, taking the time to build direct relationships with potential PE partners is crucial.

Success in a PE partnership comes down to the quality of relationships - between founder and operating advisor, between founders in roll-up situations, and among functional leaders across the organization. When these relationships work well, PE can truly deliver on its promise of helping good businesses become great.

For founders considering this path, the focus should be less on whether PE is the right choice in general, and more on finding the specific PE partner that matches their goals, values, and working style. With the right fit, private equity can indeed be everything it's cracked up to be - and more.

If you would like to discuss your situation, I would be delighted to jump on call. https://calendly.com/corysalmela.

All the best,

Cory

Cory Salmela

Founder & CEO?

218-590-4448

[email protected]

meetsalmela.com

About Salmela:

Salmela is a Talent Advisory Firm.? From Growth Services to Executive Search to Fractional Talent Acquisition, Salmela is here to help our clients plan for and execute growth, acquire and sell divisions and companies, and connect companies with permanent hire and fractional talent.