PE questions: timeline inbound, diligence, deal unique

Summary

• Paul Gammore addressed frequently asked questions about private equity (PE) investments, including timelines, responding to PE outreach, due diligence, debt levels, control rights, and backing out after a letter of intent.
• Key guidance was provided for both advised and unadvised business owners approached by PE firms.
• The session also outlined the typical diligence process and clarified common misconceptions about PE deal structures and risks.

Action Items

• (No specific action items or owners were mentioned in the transcript.)

Private Equity Investment Timeline

• Serious PE deal processes typically take 3 to 5 months from engagement to completion.
• Initial contact and pre-engagement phases can last longer if less formal or not yet committed.

Responding to Private Equity Outreach

• Clients with advisors are advised to forward PE firm emails to their advisor, reply by introducing their advisor, or simply ignore the outreach.
• Unadvised business owners can choose to meet with PE firms but are encouraged to engage an advisor before entering substantive discussions, especially if considering a transaction.
• Owners are encouraged to take a proactive approach—define their goals and target firms that align—rather than passively respond to inbound inquiries.

Private Equity Due Diligence Process

• PE diligence is significant and intensive, especially if the firm is new to the industry.
• Main areas of focus: accounting and finance (revenue, cash flow, accuracy), legal (lawsuits, asset ownership), and operations (structure, compensation, processes).
• PE diligence is often more intensive than strategic acquirer diligence due to the nature of the investment process.

Private Equity Use of Debt

• PE firms typically do not put businesses in excessive debt; concerns in this area are generally overstated but should still be considered.

Rights and Control Demanded by PE Firms

• PE deals usually result in PE firms holding substantial or controlling stakes, often with extensive rights, including the ability to change management or the board.
• Such powers are generally used only if business performance requires it, but full control is standard post-closing.

Withdrawing After Signing a Letter of Intent

• Most letters of intent (LOIs) are non-binding; either party can usually withdraw by notifying the other in writing.
• Binding LOIs are rare and generally only result from not seeking professional advice.

Decisions

• (No explicit decisions were made during this session.)

Open Questions / Follow-Ups

• (No specific open questions or required follow-ups were identified in the transcript.)