The PE Checklist: Key Qualities to Look for When Choosing Your Intermediary

Private equity (PE) can be a game-changer for businesses looking to scale. But for those new to the world of PE firms, investment structures and cryptic jargon can feel like a code waiting to be cracked. Intermediaries possess specialized knowledge including extensive insights into investor expectations, investment criteria, and trends specific to your business sector. With well-established relationships and a broad network of private equity firms, they help clarify and articulate the vision, growth potential, and strategic value of your business to savvy investors in a way that will help you find the best partner for your deal.

4 Signs That You Need an Intermediary

PE Is Its Own Network

Many businesses, particularly small to mid-sized ones, may not have direct access to the private equity community or established relationships with PE firms. An intermediary acts as a bridge, connecting your business with potential investors. This is especially vital if your industry or sector requires specialized investors who understand the nuances of your market.

Deal Structures are Complex

Private equity deals are not straightforward. They often involve complex terminology and intricate investment structures that have been exacerbated by today’s market. Intermediaries bring a depth of knowledge in these areas, ensuring you navigate these complexities with greater confidence and understanding.

Strong Time Management is Essential

For business owners and founders already consumed by the day-to-day operations of their company, intermediaries can save valuable time and resources as an ally handling the extensive legwork involved in sourcing a transaction and preparation; from due diligence to detailed investment pitches.

Business Valuations Take Consideration

A common error in the investment process is undervaluing or overvaluing your company. Intermediaries provide the guidance to value your business appropriately, taking into account key factors like industry standards, market conditions, and future growth potential.

Your Journey:

The Path to Choosing a Top-Tier Intermediary

Let’s say you’ve decided to work with an intermediary, that begs the question, how do you select the right partner? 

There are a variety of intermediaries with varying expertise, how do you find the perfect fit for your business?

Understanding Your Options Different Types of Intermediaries

Firstly, it’s important to understand the vast array of intermediaries and their roles. Investment bankers typically handle larger transactions and can help structure complex financing arrangements. Business brokers are often involved with smaller business transactions, which might be more hands-on with smaller or family-owned businesses. M&A advisors navigate the intricacies of mergers and acquisitions, offering strategic advice tailored to each transaction’s requirements. Depending on the scale and nature of your desired transaction, one type of intermediary might suit your needs better than another.

Identify Your Needs

The next step is to clearly identify what you want to achieve through your partnership with an intermediary. Are you looking for growth capital, a full exit, or perhaps a strategic partner to scale your business? Understanding your objectives will help in selecting an intermediary whose expertise aligns with your goals. A business will want to consider:

  • Industry Expertise: Look for an intermediary who speaks your language. They should have a thorough understanding of your industry’s trends, challenges, and valuation metrics. Someone who’s navigated similar transactions within your sector will be invaluable in positioning your business for success.
  • Track Record and Reputation: Experience matters. Research the intermediary’s past performance, including completed transactions in your industry size range. Talk to their references and get a sense of their reputation within the PE community. A solid track record combined with positive feedback from past clients builds confidence in their ability to deliver results.
  • Cultural Fit: This might sound surprising, but it’s important! You’ll be working closely with this intermediary, so ensure their communication style and work ethic align with your company’s culture. You need someone you trust and feel comfortable collaborating with openly.
  • Location and Business Size: Consider the geographical location and the size of the intermediary’s typical business dealings. Local experts might offer more personalized service and better understand regional market conditions. Meanwhile, the size of the intermediary can influence the level of personalized attention they can provide and their resource availability.
  • Fee Structure Transparency: Fees can vary across intermediaries. Be upfront about your budget and understand their fee structure (hourly, retainer, success-based). Ensure it aligns with your financial situation and feels fair for the services provided.

Choosing the right intermediary is a nuanced decision that can significantly influence the outcome of your private equity endeavors. Take your time to vet potential partners thoroughly, ensuring they not only have the credentials and expertise but also the commitment to place your interests at the forefront of their efforts. This careful selection process will pave the way for a fruitful partnership that effectively supports your strategic financial objectives.