For small to medium-sized manufacturers, the idea of selling your business to a private equity firm can be both exciting and daunting. PE firms offer a heightened level of financial expertise and growing potential, but they also introduce a significant shift in how your company operates.
Here’s what to expect when selling to a PE firm—plus some practical advice to help navigate the process.
What Does Selling to a PE Firm Look Like?
When you’re considering selling to a PE firm, it might feel like you’re stepping into uncharted territory. While you’re accustomed to things like machining safety, manufacturing efficiency, and the comprehensive ins and outs of machine shop management, PE firms focus on financial performance and growth potential.
PE firms don’t decide to invest in a business because of how the business operates in the offices or on the shop floor. Respectfully, many PE firms don’t know the difference between a lathe and a mill. Instead, they’re investing in your business based on its bottom line and scalability. Their priority is achieving results for their investors. That means they’ll evaluate your company differently than you might, prioritizing financial metrics over the day-to-day shop floor operations that you’re accustomed to managing.
Our Advice for Business Owners Considering Selling to Private Equity
For some business owners, selling to a PE firm was a source of frustration. For others, it was the best move of their careers. Before you make this decision, weigh out the pros and cons and heed our advice:
Ask the Right Questions
Before selling, it’s crucial to have your own agenda. Be sure to ask yourself these questions to determine what type of arrangement is best for you:
- What’s your goal? Are you looking for a clean exit, or do you want to remain involved?
- Is the PE firm interested in long-term growth or short-term returns?
- What will their involvement mean for your team and the company culture?
- Do you want decision-making power? If so, how much say will you have in decisions post-sale?
Find the Right Fit
Not all PE firms operate the same way. Some are considered “turn and burn” firms looking to quickly flip the company for profit, while others take a longer-term approach to growth. What type of firm do you believe best aligns with what you’d like for the future of your business?
Understand that Change Is Inevitable
One of the most important things to consider when selling to a PE firm is that change will come. For those who thrive on consistency, this can be a tough adjustment. PE firms often introduce changes in organizational structure, processes, and even personnel.
These changes may be less disruptive for larger organizations, as these companies tend to have established roles and procedures. However, owners of smaller companies should expect more significant adjustments. But don’t fret; not all change is bad! A fruitful marriage of manufacturing expertise and financial strategy can lead to exciting improvements and greater opportunities.
Manage Your Expectations
It’s natural to feel a deep emotional connection to your business, especially if you’ve spent years or decades building it. And it’s important to consider that PE firms don’t share that same emotional attachment. So, when selling to a PE firm, it’s essential to control your expectations. Once the sale is complete, the future direction of the company is largely out of your hands. Many business owners choose to stay on post-sale, but others would recommend leaving sooner rather than later, not only to allow the firm to implement its vision but also to preserve your own sanity.
How NTMA Can Help
If selling to a PE firm doesn’t align with your vision, there are alternatives. Many NTMA members prefer to sell to other manufacturing companies instead. NTMA can help facilitate connections thanks to our robust manufacturing network and partnerships with organizations that specialize in matchmaking for business sales.
On the other hand, NTMA is invaluable for companies that decide to sell to PE firms. While PE firms bring financial expertise, NTMA provides limitless manufacturing resources. From building connections with fellow manufacturers on NTMA Connect to saving money through NTMA’s exclusive cutting tool program, the association offers tools and insights that all businesses can benefit from.
Selling to a PE firm can be the best decision you’ve ever made, or it might not be the right fit for your goals. By leveraging organizations like NTMA, you can ensure the best outcome, whether you decide to sell to private equity or find another path forward.
Not a member yet? Join NTMA to reap the benefits of our vibrant community.