For many founders, there comes a time when stepping down from the helm of your business seems the right move.
This can potentially raise a few different questions – can I still access Private Equity (PE) investment? What if I don’t have a successor lined up?
Let’s look at your options in more detail.
If your objective is to step down and fully exit the business, the trade route is a much more viable option and typically would only require a short transition period
Thinking about trade buyers as an alternative
While PE transactions are arguably the more complex route if you’re looking to step down, it’s also worth mentioning trade buyers. If your objective is to step down and fully exit the business, the trade route is a much more viable option and typically would only require a short transition period.
As your business is likely being acquired and merged into existing structures, they may be less inclined to keep the management team on (depending on your objectives). This means that there is less of a need to have a strong and deep team beneath you, or a CEO-in-waiting, and an exit is more straightforward.
PE firms back management teams
When exploring a transaction, PE firms typically say that they back management teams not businesses, particularly if it is a growth investment. This means that, when exploring a transaction, the quality of the management team and having a senior team that is excited and committed to taking the business through the next phase of its growth is as important as the quality of the business itself.
This often means that, if you would like to explore a sale process and have a desire to sell all your shares and fully exit the business (and have no succession plan in place), it is unlikely a PE firm would support this.
PE can still work, but only in certain scenarios
However, there are certain instances when PE may be more supportive.
The first scenario is if you are a CEO of a business that is already PE-owned. Being open with the PE about your intentions to move on will allow them to ensure there is a proper succession plan in place. It is often the PE will be able to assist with finding a new CEO, resulting in a transition of 1-2 years while the right person is found and there is a proper handover period.
The second scenario is if you are a CEO of a business that is currently privately-owned, but looking to explore a PE transaction. As already mentioned, a PE firm is unlikely to back the business if you are looking to immediately step back. However, if there is a strong and embedded team beneath you, they may still be interested in backing the business. Again, this would likely be with a transition period of 1-2 years to assist with finding an appropriate replacement and ensuring a smooth transition.
Key to the PE route is two things.
Firstly, ensuring there are other experienced members of the leadership team who can effectively run the business without you.
Secondly, it’s important to be open about your intentions with the appropriate PE firm so that they can have an appropriate succession plan in place. As advisors, we’d typically work with you to discuss these requirements at least 12-24 months in advance of any transaction being considered.
Knowledge
We don't hide behind jargon and complexity. Instead, we aim to open up the black box of M&A, illuminating the path with clear insight, simplifying the process, and delivering valuable information.
Knowledge
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