Should you invite PIGS to your party?
When you have made the decision to take your firm to the market and look for the appropriate acquirer, you obviously want to maximize your company’s value. An investment banking firm like Aspen Mergers and Acquisitions might inform you that the most efficient way to do this would be to market your company to both strategic and financial buyers. Strategic buyers are those companies that either do the same thing that your firm does or have some synergistic connection to what you do. Financial buyers, Private Investor Groups or Private Equity Groups, commonly referred to as PIGS, invest private equity in diverse companies and industries. Since you might be unfamiliar
"...you may ask your investment banker whether you want to invite these PIGS to your party. The answer is a resounding YES."with the private equity sector, you may ask your investment banker whether you want to invite these PIGS to your party. The answer is a resounding “YES.”
Unlike Venture Capital (VC) firms that invest in early stage entrepreneurial firms characterized by significant intangible assets, which expect years of negative earnings and are unable to raise any significant bank financing, Private Investor Groups (PIGS) look for buyout and recapitalization opportunities with more established firms. They normally have the ability to bring their own investors’ equity capital into a deal as well as being able to secure senior level and mezzanine level debt instruments. This flexibility enables PIGS to create an acceptable leveraged capital structure that adequately reward their investors while not endangering the company’s cash flow. Once a transaction has been closed, PIGS generally participate actively in the management of the
Once a transaction has been closed, PIGS generally participate actively in the management of the new company.new company (Newco). This active participation not only takes place at the Board of Directors level but, also at the operation level. This valuable assistance provides the Newco’s managers with a level of overall business expertise that they most likely did not previously possess. Moreover, since many of the Private Investor Group’s investors have been, or still are, active in the business community, they are able to bring synergistic opportunities to the firm that were previously impossible to obtain.
Private equity funds typically have limited and general partners. The limited partners are institutional and individual investors who provide capital. These are limited in the sense that their liability extends only to the capital that they contribute. A private equity fund is typically raised in several stages and a PIG may have separate funds, or tranches of new equity, to pursue their target acquisitions. Investors in private equity funds are eager to avoid opportunistic behavior by the general partner. As a result, there are usually a series of contractual provisions or restrictions that govern each fund. Here are some examples of restrictions that could be placed on a private equity fund by its investors or limited partners:
Whether your objective is to retire from your company after transitioning your business to a new owner or simply to take some hard-earned equity off the table and continue to work with the company for many years to come, a PIG may be the best guest at your party.may elect to take some form of stock, either common or preferred, in the Newco and obtain payment when the company has a future liquidation event such as a recapitalization or another buyout. This is called carried interest and generally signals that the PIG is confident in his ability to create future value for the firm. It is very likely that you will see a combination of these in a term sheet that you might receive. An investment banker like Aspen Mergers and Acquisitions should be well versed in these techniques and should be able to confidently guide you through this confusing maze.
At Aspen Mergers and Acquisitions, we have carefully developed and crafted unique and lasting relationships with over 750 domestic and international private equity groups. These relationships have taken years to cultivate and represent a major reason why Aspen M&A can successfully market your firm to the best buyers in the world. Therefore, it truly makes sense to invite PIGS to your party. Whether your objective is to retire from your company after transitioning your business to a new owner or simply to take some hard-earned equity off the table and continue to work with the Newco for many years to come, a PIG may be the best guest at your party.
Please contact us at Aspen Mergers and Acquisitions and give us the opportunity to have a no cost conversation with you about the acquisition and valuation process. We promise to introduce you to a host of PIGS.
Robert A. Veri