Lessons Learned: Private Equity-Backed CEOs with Recent Liquidity Events

Each spring of each year, BSG recruits and assembles a panel of private equity-backed CEOs who have successfully exited their businesses in the prior 12 months to share their lessons learned at a private dinner held for private equity-backed CEOs, and their PE investors at the Dane Estate in Chestnut Hill, Massachusetts.  In this, our third year’s panel, we were proud to bring together the following 4 CEOs with recent liquidity events to come and tell their story, and pass along their pearls of wisdom.

This year, we’ve aggregated and categorized their feedback into 4 learning categories—The Team, The Business, The Investor, and The Banker.

THE TEAM

• Build management team quickly, AND, move quickly to make a change if things are not working out. May seem obvious, but PE management is not a training ground.
• Make sure you have a strong CFO and start building your reporting, measurements, etc. early. Think about what you will need for your data room years before you kick off the process. It will make life a lot easier when the time comes.
• Set proper expectations with your executive team prior to launching the company sale process. Both what will be expected of them during the process and after the sale.

THE BUSINESS

• Keep your eye on the business and be 100% sure you will meet or beat every financial target that is in your presentation.
• Understand the key drivers of growth early – this will guide your strategies and tactics as well as being the basis of your selling story on exit.
• There is no substitute for audited financials. If you don’t have them this will be used against you during negotiations.
• There is also no substitute for a traditional bank loan or line of credit. This further validates the historic performance of the business, and indicates that the operating metrics have been vetted by the most conservative of lenders. This helps temper negotiations with PE firms whose strategy is to leverage the business to pay for the transaction. In other words, “We don’t need you to get a loan to buy us.  We could get (and have gotten) our own loan.” 

THE INVESTOR

• Total transparency and partnership with the PE Managing Director(s) you’re working with. You and your PE firm are on the same team; alignment should be perfect. 
• If you are going to do multiple transactions the most important value of the first PE firm you select will likely be the support they provide for the next one.
• If you are taking late stage funding as your first PE transaction expect much more presentation and PowerPoint overhead than you are used to. While it often doesn’t yield improved company performance, it sure makes investors feel better. 
• Make a concerted effort to over communicate, especially with the operating teams within the private equity firm. These resources are almost free, but won’t come looking for you. 
• Make use of the roll up and leverage capability that private equity allows early and often.  Inorganic growth is just as valuable upon exit, and may accelerate the time to value.  
• Make no assumptions about investor intentions regarding the company in which they’ve invested. Know the full investment thesis and the full spectrum of views around what the investor-company partnership might look like.  
• Alignment with your investor(s) around the approach to strategic vs. financial buyers, and alignment on responsibilities during the process.
• Venture capital and private equity firms are not opposites, but rather operate on a continuum of guiding investment principals that have a wide range of overlap.

THE BANKER

• Get to know some of the key Investment bankers in your industry early. Meet with them a few times/year to make sure they understand your business and keep them updated on your strategy and progress. When it’s time to kick off a process you will have bankers who can really help you tell the story. Identify an i-banker for exit that is all in on the deal, meaning— 
  • Their valuation expectations are aligned with the stakeholders (PE Firm and management) and their fee structure.
• Willingness to roll up their sleeves to help management with the administrative tasks as well as being a strategic deal partner. It is hard enough to run a deal process and run the business at the same time; the Banker should not be a distraction or headache.