Top Ten Considerations
When Selling Your Business
to Private Equity
1. Know your own value—Beyond the intrinsic value of a business, a private equity
buyer will likely want to take advantage of an effective and experienced management
team who can assist the private equity firm with growing the company after the sale.
As a result, a seller who is looking to cash out and retire may not always be the best
fit for a private equity buyer.
2. Have the support of your management—The transaction is more likely to
succeed if a seller’s management team and key employees support the deal. The
seller should spend time building this consensus and aligning incentives prior to
engaging in a sale process.
3. Hire the right banker—A qualified investment banker can add tremendous value
in positioning the business for sale, running a sale process, identifying the best
private equity buyer, and helping to negotiate the key deal terms.
4. Understand the letter of intent—A seller should closely evaluate the material
terms of an offer before signing a term sheet. Once a letter of intent is executed, the
seller should be prepared to grant exclusivity to the buyer and to close the deal on
the terms agreed to in the letter of intent.
5. Clean up your books—Private equity buyers generally require a review of seller’s
Contact us:
David A. Martland, partner
Global Business & Transactions
dmartland@nixonpeabody.com
617-345-6145
Gregory M. O’Shaughnessy, partner
Global Business & Transactions
goshaughnessy@nixonpeabody.com
617-345-1343
Philip B. Taub, partner
Global Business & Transactions
ptaub@nixonpeabody.com
617-345-1165
audited financials for a minimum of the preceding 2–3 years. A seller who is preparing
its books and records for review by a private equity buyer should also use the opportunity to remove personal assets that may be carried on the company’s books.
6. Due diligence: honesty pays—Being forthright about due diligence issues early
in the process will allow a seller to build trust with a private equity buyer, enabling a
quicker close to the transaction. A seller should help the private equity firm understand the business and avoid hiding problems until late in the negotiation.
7. Expect to have skin in the game—Part of the purchase price may be in the form
of a holdback, equity of the new company, or an earn-out. Sellers will often have the
opportunity to share in the continued growth of the company, but may also need to
share in the risk that the company does not thrive.
8. Prepare for changes to the business—Private equity firms succeed on finding
hidden value in an acquired business. This may mean the licensing of intellectual
property or the sale of long-owned real estate that were not previously considered
by the seller.
9. Don’t underestimate the time commitment—Selling a business is a complex
transaction that requires a considerable amount of a seller’s attention. During that
process, however, the seller must continue to operate the business profitably, making
the seller’s preparation for the sale process especially important.
10.Private equity buyers should be equipped to close deals—Sellers should make
sure that the buyer will have access to the funds necessary to consummate a deal.
A “GLOBAL 100” FIRM:
Nixon Peabody’s Private Equity practice
Nixon Peabody is a national leader in the private equity industry. We are
committed to helping institutional investors, sponsors, funds, and portfolio
companies manage risk and deploy capital in the middle market.
Over the past seven years, Private Equity Analyst has ranked Nixon Peabody
among the most active law firms for private equity and venture capital transactions (#17 in 2011), as well as for fund formation and investments (#3 in 2011). In
addition, our attorneys have been recognized as leaders in the field by Chambers
USA: America’s Leading Lawyers for Business and Best Lawyers in America.
We cover all aspects of the market, including:
•
Investment funds: representing a broad scope of institutional investors in
connection with fund formation and investment activities in the U.S. and abroad
•
Private equity: advising lower middle market and middle market funds
in buyouts, recapitalizations, go-privates, distressed acquisitions, PIPEs,
mezzanine debt and junior capital transactions and a wide range of portfolio investment activities
•
Venture capital: representing venture capital funds in seed, venture, and
growth equity financings
•
Portfolio companies: serving as outside general counsel to private equitybacked companies through corporate formation, equity investments, and
subsequent commercial growth
• Approximately 700 attorneys
collaborating across major practice
areas throughout the U.S. and in
European and Asian commercial
centers.
• Business & Finance Department
services a broad scope of corporate,
private equity, and financial institution clients.
• Intellectual Property Department
includes lawyers with extensive
experience in all areas of intellectual
property law, including patent,
trademark and copyright litigation,
counseling, and protection as well as
business transactions for technology-based organizations.
• Real estate lawyers that balance
extensive knowledge with sound
business and legal judgment to
deliver creative solutions for our
clients.
• Broad and deep Litigation Department with a diverse group of more
than 300 trial lawyers with demonstrated experience in a wide range
of domestic and international
disputes.
Our rankings and recognition:
americanlawyer.com
april 2011
FEATURED ON THE COVER OF AMERICAN LAWYER AS
“DEALMAKERS OF THE YEAR”
dealmakers of the year
blown away
The lawyers who played key roles
in the year’s most important deals.
nixon peabody’s
william andrews
and lori green
ONE OF THE BEST LAW FIRMS IN THE U.S. FOR CORPORATE LAW
CORPORATE/M&A AND PRIVATE EQUITY/VENTURE CAPITAL
PRACTICES RANKED AS INDUSTRY LEADERS NATIONALLY
AND INTERNATIONALLY
RANKED 3RD MOST ACTIVE FOR INVESTMENT FUNDS AND
17TH FOR PRIVATE EQUITY AND VENTURE CAPITAL DEALS
GLOBALLY RANKED FOR MIDDLE MARKET MERGERS,
ACQUISITIONS, AND BUYOUTS
ADVISED ON 2011 MIDDLE MARKET DEAL OF THE YEAR
ADVISED ON 2011 HEALTHCARE & LIFE SCIENCES
DEAL OF THE YEAR
Prior results do not guarantee a similar outcome. This material may be considered advertising under certain rules of
professional conduct. The content should not be construed as legal advice, and readers should not act upon information
in this publication without professional counsel. Copyright © 2012 Nixon Peabody LLP. All rights reserved.
INSIGHT INTO THE LATEST
MARKET CONDITIONS,
DEAL TERMS, AND TRENDS:
• NP Capital Connector—a proprietary referral program aimed at
matching companies in our
network with potential investors,
buyers, partners, or advisors
• Quarterly “Hot Topics” events series
for middle market companies
• Annual MAC Survey, a study of
current negotiation trends of
Material Adverse Change clauses
in M&A transactions