The Stages of the PE Lifecycle
We will guide you through every step of the Private Equity process. See how we can support you at each stage.Is Private Equity Right for Your Company?
You have a successful business and are ready to make the next big move. With a proven business model, you need investment to drive faster growth and expansion. Private Equity (PE) is one of the options available to you. The main question is whether PE is the right move for you and your business.PE can be a fantastic experience that propels ambitious businesses to transform and grow rapidly. The potential rewards for management and investors are substantial, often resulting in a highly successful and valuable business.
BDO regularly hosts ‘Private Equity Demystified’ events for businesses considering their next move. These events provide the information and understanding needed to make an informed choice about PE. Featuring speakers from PE Houses and portfolio companies, these events offer valuable insights.
Exploring Private Equity
PE investors seek businesses with the potential to deliver substantial returns on investment within a relatively short timeframe, typically between three and five years. The general aim is to double their money in three years or triple it in five years.As a result, PE firms look for specific characteristics that indicate potential for rapid value growth. These include macro-economic factors and micro-economic considerations such as value, growth, margins, and cash conversion. PE houses also evaluate the owner, management team, and other factors.
Each PE house places different emphasis on these elements based on their strategy, risk appetite, and approach to working with and supporting portfolio companies. This influences how they value potential portfolio companies.
It is your advisor's job to help you find the right PE partners.
Securing the Right Private Equity Deal
Once you decide that PE is the right path for your company, you are essentially ‘selling’ your business or a part of it to an investor who will become a key stakeholder, represented on your board and sometimes on your management team. The challenge is to find the right investor who shares your vision for the business and can work with you as a key business partner.Our advice is to start by defining success for you and your business:
- What are you trying to achieve?
- Are you looking for monetary value?
- Are you concerned about your legacy?
- Do you have a vision for your business?
- How does PE investment help you achieve that?
- How much investment do you need to achieve success?
How BDO Can Help You Secure the Right Private Equity Deal
From defining your goals to completing a deal and beyond, we guide you to avoid pitfalls and common mistakes. Our extensive network of relationships with PE Houses and our understanding of their strengths and specialisms come from completing numerous deals and working with many PE-backed companies. There is no substitute for that kind of experience.BDO predominantly works with ambitious, entrepreneurially-spirited businesses. We understand how to help them achieve their goals. During the PE deal process, we take the time to understand you, your ambitions, and your business. This understanding enables us to effectively champion you through the complex and time-intensive process of completing a deal. We want you to have the confidence to rigorously vet investors to ensure you find the right partner for the next three to five years.
We provide advice and support in three main areas: readiness and preparation, marketing, and deal completion.
Readiness and Preparation
At this stage, you will establish the fundamentals of your PE deal. You need to agree on a timetable and approach with stakeholders. Are you considering a dual-track approach to finding investment, looking at both trade deals and PE investment? Your business plan and marketing information must tell your “equity story,” providing concrete evidence for the investment hypothesis you will present to investors.You must also anticipate and mitigate potential risks and challenges. Start preparing the information that will support a deal, remembering that you will typically partner with your PE backer for three to five years.
We provide advice on all areas of your business to prepare for a PE deal, from formulating an “equity story” to planning resources and project management for completing the deal. Working with your senior team, we help identify and seize opportunities to improve business performance, manage risks, and ensure the business is ready.
Our services include:
- Defining what success means to you, your team, and your business
- Building a robust business plan and financial model with returns analysis
- Deciding on your deal strategy to match your goals, considering price, potential investors, and timing
- Addressing operational issues
- Building a secure and comprehensive online ‘data room’ with information for investors
- Preparing the Information Memorandum and other selling materials
- Conducting Vendor Due Diligence, including tax and financial information
- Taking initial soundings of the PE market and tracking market activity to determine the optimal launch point
Marketing
With stakeholders aligned around a clear definition of success and a business geared for sale, you are ready to present your investment hypothesis to investors and generate interest and competitive tension.Our services include:
- Building and rehearsing a credible management presentation
- Leading buyer interactions
- Managing investor enquiries and multiple advisors
- Addressing difficult issues and questions
- Guiding valuations to drive meaningful offers
Deal Completion
Deal completion involves moving from a shortlist of potential investors to securing a deal with a single investor. This process includes informal conversations, non-binding offers, and finalizing a Sale and Purchase Agreement, a ‘management deal.’ It involves legal, tax, and financial advisors on both sides and high-pressure negotiations.Our services include:
- Managing interactions with all legal, tax, and financial advisors
- Negotiating the final offer to completion
- Negotiating an incentivizing management deal that aligns interests
- Balancing risk and reward
- Delivering an optimal tax structure
Making Private Equity Work for You
Two key actions can significantly enhance your chances of a positive and rewarding experience in Private Equity. Our Private Equity Team is here to assist you with both.Define "Success"
The first step is to define what success means for you and your business. PE investors typically aim to double their investment value in three years or triple it in five years. However, your definition of success, along with that of other stakeholders, may be more complex than just monetary value. Consider the following questions:- What do you envision for your business?
- What drives your ambition?
- Is legacy important, or is financial gain your primary motivator?
- What role do you see for yourself in the future?
- What will happen to your employees?
Prepare
The second crucial step is preparation. You must ensure your business is in the best possible shape for investment, examining every aspect for efficiency gains. Prepare for a significant change in financial reporting to satisfy investors. We also recommend reviewing a ‘Due Diligence’ questionnaire to understand the volume of information required by potential investors during the deal-making process.Accelerating Growth with Private Equity
At the core of the Private Equity (PE) process is the investment thesis or “equity story.” This outlines how the portfolio company will deliver the value growth that investors expect. Achieving rapid growth often requires transforming your business, adopting best practices across all areas, and ensuring alignment among stakeholders—management, company, and investors.How BDO Can Help You Grow
BDO’s PE team provides the ideas and insights needed to find the right path for your business. Our expertise stems from hands-on experience guiding hundreds of businesses through Private Equity. We are results-driven and help our clients achieve their goals across audit, tax, and business advisory services. We ensure every area of your business is geared towards successfully delivering on the equity story.Performance and Growth
We help refine your business strategy to drive top-line growth and improve margins. Whether investing in acquisitions, people, or technology, we ensure your investments effectively support accelerated growth.Financial Management and Funding
Effective business leaders maximize every asset and dollar. We work with you to improve cash flow and optimize tax and financial structures, making it easier to manage banks, funders, and acquisitions. We also provide specific advice and practical support in these areas.Operational Improvement
Investigating operational improvements can yield significant positive impacts. Most companies can achieve greater growth, higher margins, better cash conversion, and reduced risks with focused efforts. We help benchmark operational effectiveness, devise pragmatic plans, and assist in implementing changes.Governance and Leadership
We advise on effective governance structures to maintain alignment with business strategy and ensure management team effectiveness. Addressing gaps in the management team, such as adding Non-Executive Directors or PE experience, can have a significant impact.Risk Management and Financial Reporting
PE investors demand high levels of management and financial reporting. We help improve your reporting systems and advise on regulatory compliance to minimize risks and ensure robust reporting and compliance structures.Strategy
Your strategy is the foundation for growth. It should address questions such as:- What M&A activity should you pursue?
- Where will new revenues come from?
- What is your international strategy?
- Who will buy your business when it’s time to realize gains?
Exit and Realizing Private Equity Gains
From the first day of PE investment, you should consider your exit strategy and how to realize value gains. The process for securing a deal to end your PE investment cycle is similar to finding your initial PE investor, with the added need to satisfy your current PE investor’s return on investment requirements.Consider whether you and your management team want to continue managing the business or seek a complete exit, as this will influence the business's value and investor returns.
How BDO Can Help
The BDO Private Equity Team supports you in completing the optimal deal at the end of a PE investment. Whether you aim to exit or continue leading your company’s growth, we help you find the right path with your current PE house, from trade deals to further PE investment or an Initial Public Offering.We assist with:
- Identifying the best routes to success for investors and management
- Preparing all necessary deal information
- Preparing your business for a deal
- Timing the sale optimally
- Finding the best market value
- Identifying potential overseas investors and buyers
- Maintaining buyer interest and competitive tension
- Establishing tax-efficient exit structures