Growing Your Business
There are many private equity groups (PEGS) that have built funds they want to leverage where they buy a portion of the equity in privately held middle size companies just like yours. Many of these groups do not wish to come and buy the entire company. They are more interested in buying either a minority or a majority share of the business while you stay on as a minority or majority partner and run the business.
This arrangement gives you the possibility of taking some of the chips off the table, staying highly involved in the company, and bringing in the needed financial capital to grow your company to the next level. Then anywhere from 3 to 7 years later, you and your equity partners can sell the company. At this stage of the game, you can take all your chips off the table, generally a much larger play than the first transaction, or there is the possibility of continuing to have an equity stake in the company. It can be a joint decision between you and the new equity group whether you continue to be an equity player or just an employee.
Frequently, business owners of middle market companies are great at creating a business and taking it quite far, but there comes a point when they have stretched their personal gifts and talents as far and thin as possible. At this point, the company hits a ceiling and stops growing. Unfortunately, this leveling off of revenue and profits can only last for so long and then either competition or the economy comes in to take the company down. Before this point is reached, many business owners recognize their strengths…and their weaknesses, and therefore, bring in the PEGS which are capable of providing strong experienced decision makers for the Board of Directors and strong top management to run the company, taking it to the next level. You as the business owner can continue on with the company in the role that best suits your strengths, and together a winning team is created.
This arrangement gives you the possibility of taking substantial chips off the table since you will generally be a minority shareholder. However, you will be staying highly involved in the company, and bringing in the needed human capital to take your company to the next level. Then anywhere from 1 to 7 years later you can sell the balance of your interest in the company. If you chose to stay on until the PEG sells its interest to a larger PEG, you can then have the ability of taking additional chips off the table and having an equity stake in the company to boot with a new PEG. It can be a joint decision between you and the new equity group whether you continue to be an equity player or just an employee. If you develop a trusting relationship with the PEG, the future can be quite bright. Trust is key.