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Selling a business to private equity - what are the ups and downs?
In Denmark, there are more than 80 active private equity funds, some of which are foreign. This is a threefold increase in 15 years. It's a completely different type of buyer than an industrial buyer, which is also part of our buyer network.
The focus of private equity funds is not the same. It is different whether they focus on minority or majority ownership. In other words, owning more or less than 50 percent of the company. Furthermore, company size and industries are also differentiated. When a private equity fund buys into a small or medium-sized privately owned company, it is often to consolidate in a market where they already own a larger company, says Klaus Termansen.
If the private equity fund wants control of the company, it will buy more than 50 percent. Other times, it will seek minority ownership and buy a stake of less than 50 percent. In addition to money for the selling shareholders, private equity funds can also inject new capital into the company to implement a growth strategy. Finally, they add expertise to the company in the form of a board position or generational succession in management.
"Private equity funds buy and develop companies. They generally have an ownership time horizon of 3 - 7 years. The funds to buy companies typically come from pension funds, banks, other large investors who manage wealth and private wealthy individuals. Private equity funds invest in privately owned companies to create value that serves the interests of the entire ownership group." says Klaus Termansen.
When is it relevant to sell a business to a private equity firm?
If you are a business owner or part of the ownership group of a company, these are the two situations where it can be interesting to sell a shareholding to a private equity fund:
- Selling a company to a private equity fund is relevant when a business owner has ambitions for business development and wants to add capital and specific skills. And possibly the opportunity to reinvest part of the proceeds from the sale, so that you are still part of the ownership group and have the opportunity for a new profit when the private equity fund sells the company again.
- Selling a business to a private equity fund is relevant in companies with a group of owners where a single owner wishes to sell their shares in the company, while the other owners prefer to retain their shares. This situation is often seen in companies where one owner is older than the others and is ready for generational succession before the other owners.
Owners get more freedom when selling to private equity
With a private equity fund in the ownership circle, the other owners gain an advantage that is often not present if an industrial partner becomes a co-owner, says Klaus Termansen:
"Once you have sold a shareholding to an industrial investor, it is highly likely that the same investor will buy the remaining shares the day the other owners want to withdraw," he says.
The advisor elaborates:
"If you sell a shareholding to a private equity fund, on the other hand, those who hold the majority are more free to decide who they optimally want to sell to in connection with a later exit. Typically, the private equity fund will be interested in exiting the company in sync with the rest of the ownership group."
Business Broker on sale to private equity fund
As a partner at Business Broker , Klaus Termansen has Business Broker as an advisor in the sales process for a large number of ownership transfers in companies. Business Broker extensive experience in selling to financial partners, including investment companies, family offices, and capital funds.
"Every business sale is unique. When Business Broker engaged as advisors in the sale of a business, the first step in the sales process is always a strategic clarification, including market analysis. The best match may turn out to be completely different from what the business owners originally had in mind," says Klaus Termansen.
Get an insight into the transactions that Business Broker advised on.
