What is the purpose of owning a business? For some the answer to this question may be that they want the power to make decisions, for others it may be that they want the freedom, for private equity groups the answer is that they want the cash flow. When selling a business to any buyer it is important to know what the buyer wants and is looking for. When selling a business to a private equity group it is important to note that the group is looking primarily for cash flow.
A private equity group is a group of experienced professionals that have worked in management consulting, investment banking, corporate management, or entrepreneurship. These professionals are then looking for companies that have a high degree of potential and that will continue to expand rapidly when the skills these professionals have developed are applied. The main goal of a PE group is to provide a healthy return on investment to the fund or pool of money managed by the group. This is accomplished as they apply those skills.
The PE group will be more interested in acquiring a business that has a unique product or edge in the market and industry it operates in. For example, one of Deal Capital’s partners is looking to acquire a health care business—a breast cancer treatment company that has developed a procedure for treating early stage breast cancer using low does radiation for minimal side effects. Deal Capital’s partner is highly interested in this company because of its potential, scalability, and profitability behind the business model. Although PE groups are looking to cash flow, they are particularly attracted to high growth potential companies.
Once you understand the buyer and what he is looking for, you can begin to see whether your business is a good fit for that particular buyer.