Once you have a list of potential target companies as a private equity advisor you must begin to outline potential opportunities for improving the value of the target company. I have over 20 years of experience as a successful senior leader and entrepreneur and I believe that for a private equity deal to go through, not only do you have to find a company willing to sell, but you must identify ways to improve the value of that company. Several ways to create value in a business will be discussed below.
Mickey, Larry, and Wayne were high-fiving one another and in obvious good spirits when I approached. “Hey, guys, what’s up?” I asked.
“We were just excited that we all actually have lists of potential buy out companies,” Wayne said.
“And I have already been making some of my initial calls,” said Larry.
“I guess you have called ProAllStars, eh?” laughed Mickey.
Larry turned red and clenched his jaw. He relaxed quickly and responded, “Let’s just say I have contacted a sports apparel and merchandising company to see if they were interested in a buy out.”
“So you have called,” said Wayne.
“Of course,” said Larry, but I have only called twice and I have yet to speak to anyone except the answering service.” Larry let his shoulders fall at the end of the sentence.
“Okay, guys,” I said trying to get them to focus. “Let’s cover the next step in your development as private equity advisors, shall we?”
They all nodded.
“Good,” I said. “Once you have your targeted companies and you have started to make your initial contact calls, you have to be thinking about how you can improve their values. PE companies want to get see that you have a good understanding of the business’s operations. They are in the business of making money.”
“I know what I do,” said Mickey. “It can’t be that different.”
“No,” I said. “It’s probably not, but just so we are on the same page, I am going to review it, okay?”
“Be specific,” I started. “If you are running a sports apparel and merchandising company,” I winked at Larry, “don’t say your going to cut the pay of your sewers, say you’re going to outsource the sewing to china.”
“That makes sense,” said Wayne.
“Pick the easy stuff, you know things that tend to be pervasive throughout the industry. Don’t recreate the wheel.”
Mickey smiled broadly and scribbled down a note.
“Look for opportunities,” I continued that are difficult for the current owners to address. Many times this will be issues with owners or founders not having the appropriate management skills necessary to navigate going forward. It can exist in larger conglomerates as well.”
Mickey looked to the sky. “It may not be that hard to find ways to improve operations of some places.”
“No, but acquiring a business is no easy task,” I countered. “To continue, focus on ways to enhance existing operations. Don’t think of new businesses, or initiate services that will threaten existing sources of income.”
I looked around the table all three finished writing and looked up.
No one spoke.
“Finally,” I said, “focus on improvements that can be initiated and addressed within a three year time frame.”
“Is that it?” asked Larry.
“Yup,” I said. “Can someone recap for me?”
“Got it,” said Wayne. “First be specific in your improvements. Next look for opportunities that already exist in the target business’s world. Then, look for opportunities that the current owners or operators have found difficult to address. Then enhance the operation, don’t create new or threatening operations.”
“Yes,” I said.
“And,” said Mickey, “make sure the improvements can be addressed in three years.”
“Wow,” I said. “You all have seem to have gotten this one quick, after last week’s private-equity-industry-segment-tests talk, I was worried.”
“Well,” said Mickey, “we had some trouble with how-to-identify-a-business-segment-to-buy-as-a-private-equity-advisor, but the tests helped.”
I nodded. “No questions then?” I asked standing.
They all shook their heads.
“Good, see you in a week,” I said.
“Next week'” they said in unison, and I left
Thanks for reading.