Who are private equity, and what do you need to know in negotiating with them?

Private equity firms are composed of wealthy people and institutional investors like pension funds that provide capital for investing in promising companies. Rather than just focusing on price when private equity wants to acquire your business, consider negotiating the full range of deal terms to get the best outcome. This can be tricky, so fully understand your own interests and the buyer's motivations.

Price is typically the main priority for sellers, who want the highest value for their company. Buyers aim for the lowest price or a "market" number. Expectations depend on perspective - one side's bargain is another's rip-off. Seller education and objective valuation from an investment bank can align expectations.

"Terms" covers many non-price deal points. The deal "structure" - all cash or contingent payments like seller notes and earnouts - also matters. With all cash, the full price is paid upfront. A seller note is a promise to pay over time unrelated to future performance. Earnouts pay some cash upfront and the rest later based on hitting targets.

The buyer's financing and leverage on the target company indicate deal risk. Equity financing means the buyer owns more after the deal but costs more, around 30% for private equity. Debt financing is cheaper but riskier for the seller as creditors get priority over assets if things go wrong. Buyers use debt to "juice" equity returns through cheaper leverage. Sellers must understand the debt service obligations they'll retain after the deal. More leverage and costlier debt increase risk.

Knowing these dynamics is key before negotiating with private equity. Experienced M&A advisors can provide immense value through deal expertise and getting optimal terms. Future articles will cover complex deal terms - essential for maximizing value. Though mastering details is critical, basic deal literacy creates momentum and satisfaction. Skilled intermediaries are strongly recommended over direct talks. Their fees pay for themselves many times over in deal premiums.

Dr. Allen Nazeri, also known as "Dr. Allen", boasts an extensive 30+ years of worldwide experience as a healthcare entrepreneur. He currently holds the position of Managing Director at American Healthcare Capital and serves as the Managing Partner at PRIME exits. Throughout his career, Dr. Allen has actively provided strategic growth consulting to the leadership teams of both privately held and publicly listed companies, ensuring their preparedness for a successful exit. Holding a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire, Dr. Allen is also the esteemed author of the book "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" As part of his services, Dr. Allen generously offers a Free Valuation to business owners who are ready to embark on a partial or complete exit strategy. Leveraging his vast network, Dr. Allen collaborates with numerous strategic buyers, private equity firms, and a select group of institutional investors who are actively seeking high-quality healthcare investments. Remarkably, Dr. Allen takes direct accountability for the successful sell-side representation of an aggregate enterprise value of nearly $750M on an annual basis. If you wish to get in touch with him, feel free to reach out via [email protected] or [email protected].ity firms are composed of wealthy people and institutional investors like pension funds that provide capital for investing in promising companies. Rather than just focusing on price when private equity wants to acquire your business, consider negotiating the full range of deal terms to get the best outcome. This can be tricky, so fully understand your own interests and the buyer's motivations.

Price is typically the main priority for sellers, who want the highest value for their company. Buyers aim for the lowest price or a "market" number. Expectations depend on perspective - one side's bargain is another's rip-off. Seller education and objective valuation from an investment bank can align expectations.

"Terms" covers many non-price deal points. The deal "structure" - all cash or contingent payments like seller notes and earnouts - also matters. With all cash, the full price is paid upfront. A seller note is a promise to pay over time unrelated to future performance. Earnouts pay some cash upfront and the rest later based on hitting targets.

The buyer's financing and leverage on the target company indicate deal risk. Equity financing means the buyer owns more after the deal but costs more, around 30% for private equity. Debt financing is cheaper but riskier for the seller as creditors get priority over assets if things go wrong. Buyers use debt to "juice" equity returns through cheaper leverage. Sellers must understand the debt service obligations they'll retain after the deal. More leverage and costlier debt increase risk.

Knowing these dynamics is key before negotiating with private equity. Experienced M&A advisors can provide immense value through deal expertise and getting optimal terms. Future articles will cover complex deal terms - essential for maximizing value. Though mastering details is critical, basic deal literacy creates momentum and satisfaction. Skilled intermediaries are strongly recommended over direct talks. Their fees pay for themselves many times over in deal premiums.

Dr. Allen Nazeri, also known as "Dr. Allen", boasts an extensive 30+ years of worldwide experience as a healthcare entrepreneur. He currently holds the position of Managing Director at American Healthcare Capital and serves as the Managing Partner at PRIME exits. Throughout his career, Dr. Allen has actively provided strategic growth consulting to the leadership teams of both privately held and publicly listed companies, ensuring their preparedness for a successful exit. Holding a Dental Degree from Creighton University and an MBA in M&A and Investment Banking from the University of Bedfordshire, Dr. Allen is also the esteemed author of the book "Value Engineering: Strategies to 10X the Value of Your Clinic and Dominate the Market!" As part of his services, Dr. Allen generously offers a Free Valuation to business owners who are ready to embark on a partial or complete exit strategy. Leveraging his vast network, Dr. Allen collaborates with numerous strategic buyers, private equity firms, and a select group of institutional investors who are actively seeking high-quality healthcare investments. Remarkably, Dr. Allen takes direct accountability for the successful sell-side representation of an aggregate enterprise value of nearly $750M on an annual basis. If you wish to get in touch with him, feel free to reach out via [email protected] or [email protected] .