Selling to a Private Equity Firm

Brent Earles, an advisor for small company M&A at Allegiance Capital recently wrote an article in President & CEO Magazine about selling a small company to a private equity firm. He encourages small company owners to evaluate a few key factors when evaluating a private equity buyer:

  1. Genuine chemistry and shared vision of growth – Is there "chemistry between buyer and seller"? At Hadley Capital we have another test: would you want to have a beer/dinner with the seller? This is obviously a two way street. It is even more critical when the seller retains equity.

  2. Clear and effective funding of the transaction – Earles summarizes, "when the owners makes more of a commitment to funding the deal (i.e. seller financing) than the buyer" then maybe the alleged buyer is not the best buyer. Couldn't agree more on this point, Hadley Capital is a committed capital fund with the money required to get transactions done quickly.

  3. Diligent cadence and a commitment to the process – Earles: "deals that drag…often turn into relationships that…end badly" and "a good private equity buyer will get the deal done within a well-cadenced timeline." Couldn't agree more. Hadley Capital is slow to enter into LOIs. We take an LOI very seriously and we only sign LOIs when we plan to commit a lot of our firm's limited resources to closing the deal within 90 days.

  4. Fundamental grasp of the company's industry and business model – Earles asks, "when a PE firm starts asking basic questions about your industry", maybe its time to be wary. Hadley Capital is not an expert in any of the industries that our companies operate in but our management teams are often industry leaders. We rely on talented management teams to run our companies but we don't spend a lot of time on any acquisition unless we feel it has good long term potential, as determined by our own research and due diligence.

The only thing I would add to Earle's list is that sellers should complete due diligence on the private equity buyer. Any competent buyer will turn your business inside out during due diligence. Why not do a little of your own due diligence on the buyer? I am amazed at how few sellers do legitimate diligence on buyers. Ask to talk to other business owners that have sold businesses to the private equity firm, ask to talk to Presidents of their companies. Ask these references if the private equity firm is trustworthy, do they do what they say, how do they treat people, have they helped grow your company, etc. It's common sense, but rarely executed.

Maybe business owners are blinded by LOIs with big prices and forget that if it's too good to be true, it probably is. Get good advisors, heed the advice of Earles (his firm has represented many quality companies that Hadley Capital has reviewed over the past 10 years), and do your own due diligence on private equity buyers!


Paul Wormley - Managing Partner

Paul joined Hadley in 2005. He grew up in a family business environment and has spent his entire career working with small and emerging companies.

He currently works with Interstate Fabrications, Filter Holdings, J&R, AGI, Gillinder, Equustock, Pneu-Con, and Storflex. Previously he was the chairman or served on the board of directors for i-deal Optics, Centare, QDx Pathology, GT Golf Supplies, and Open Sky Media – all former Hadley companies.

Paul is an outdoor enthusiast who enjoys fishing, hunting, riding motorbikes, Crossfit and an occasional craft beer. He works closely with a number of non-profit organizations including One Acre Fund, Trout & Salmon Foundation, and Northfield Parks Foundation.

Paul is a graduate of the University of Colorado at Boulder and received an MBA from the Kellogg School of Management at Northwestern University. He and his wife, Rosemary, have three children.