what's the timeline for a typical private equity investment multiple years to a few months I mean if you're tooling around with a private equity firm uh on your own you might have a very long horizon You might have a long kind of mating dance with them before you consummate But typically you know when you get serious with a private equity firm particularly in a formal process anywhere between 3 and 5 months is pretty much what it takes to get a deal done What should I do if a private equity firm reaches out to me now this is a question I get every single day because our clients always have private equity firms reaching out to them directly And of course I'm going to answer this like I would answer any one of my clients which is like hey just forward the email You know you can reply to it I if you want the private equity firm to know that you've hired an adviser you can reply to the email and say PTOIC's my advisor Here's your contact information That's one way to handle it The other way to handle it is you could ignore it right you're not compelled to answer anyone Um and number three you can just forward the email to us and we'll be in contact with them in the appropriate time period Um that's how I would deal with clients Um for those of you out there who are not a client and don't have an adviser and saying "What should I do if a private equity firm reaches out to me?" Um yeah I mean that's kind of your decision You know if you want to meet with private equity and kind of understand their world and how they operate I don't see a problem in meeting with them If you're actually considering a transaction I would probably advise you to get yourself a visor don't meet with the private equity firms and wait until you get your plan put together When I talk about this in the private equity master class which you want to be at the driver's seat you don't want to take a passive approach to this So instead of fielding inbounds from private equity firms you should determine what it is you want to do with your business when you want to exit how you're going to create value what sort of firm you want to partner with and then go out and hunt for the appropriate parties And I use the example it's like you don't often answer the call from telemarketers selling all sorts of nonsense like a vacuum or a pool cover or whatever and say "Oh yeah you know I'm looking for a vacuum I'll buy it." No you find out what vacuum you want You read reviews you talk to people and you go out and buy it Now I know selling your business isn't the same thing as buying a vacuum but you get the point What kind of diligence can I expect from a private equity firm significant You know private equity firms are you know in every industry now And there's a lot of them that are entering new industries every single day And when a private equity firm that's entering a new industry tends to do a lot more diligence than private equity firms that are currently operating in an industry because the new entrant not only needs to make sure that the asset it's buying is what the seller said it is but they also have to learn about the industry and how that particular asset fits in the industry and what sort of acquisition opportunities exist and so on and so forth So but at its core you can expect diligence to be focused on accounting and finance Let's understand what revenue is Let's understand what cash flow is And let's make certain that what the seller is telling us is true So we're going to bring in outside advisors to deal with that There's legal due diligence right making sure there's no lawsuits or understanding the implications of whatever existing lawsuits there are making sure that you actually own title to the asset There's operational due diligence How is the business organized how's it structured how does it operate what's your work chart look like how how are team members incentivized what's comp structures how is it harmonized i mean there there is a ton of different work streams in due diligence for any transaction private equity or otherwise Private equity though tends to be a little bit more difficult I think for a lot of sellers than strategics Um but I never really think about the complications of a intensive due diligence session swaying me from whether or not I would do do a deal with an acquire right will private equity firms put my business in excessive debt typically not We already talked a little bit about debt so I won't go back into that but I think that's often an unwarranted concern Although it's not entirely unwarranted It should be considered but I don't think it should be a concern What rights do private equity firms typically demand in a deal well again this goes back to the prior question Is it minority is it uh majority again for the majority of you it's going to be it's going to be a substantial or a control stake in the business and they're going to have a lot of control They're going to be able to fire you They're going to be able to replace you as a CEO They're going to be able to change the board around Um now they won't necessarily do that if you're performing but they will have a lot of control over you postclosing Make no mistake what happens if I change my mind after signing a letter of intent i mean look um some of you do And when you change your mind after signing a letter of intent you just write a letter that says "I've changed my mind and I'm not interested in moving forward anymore." Unless your letter of intent was binding Um and I would be shocked if it were unless you really did not get any good advice and signed a binding letter of intent For the most part it will be non-binding and either party can walk away Thank you for joining me today as I discuss my clients most common questions regarding private equity If you've got any questions feel free to reach out to me directly on the contact form in the description below or join me on LinkedIn My name is Paul Gammore Thank you for joining me today and I'll see you on the next one [Music] [Music]