How to pitch to private equity investors

Alexis Sikorsky provides a comprehensive guide to approaching PE firms and presenting your company in the best possible light

Seeking and pitching to Private Equity (PE) investors is a critical process that requires thorough preparation, strategic planning, and effective communication. Before you even embark on this process it is essential that you have spent ample time growing your business to your desired level, preparing it for your potential exit and ensuring you have balanced off as many of the weaknesses as possible. 

Identifying the right PE partner

The first step in seeking PE investment is identifying the right partner. This involves evaluating potential PE firms based on five key criteria: activity, geography, market segment, sweet spot, and reputation.

Activity: Ensure that the PE firm is actively involved in private equity. Some funds may label themselves as PE firms but primarily act as passive investors, co-investing with other firms rather than leading deals. Review their portfolios to verify their level of involvement and risk tolerance.

Geography: Target PE firms that operate within your region and have experience in your local market. A firm’s website may list various regions, but it’s crucial to verify their actual deal history in your area.

Market segment: Choose firms that specialize in your industry. Specialized firms have a deeper understanding of your business and can offer more relevant insights and support. While it can be beneficial to talk to a few generalist PE firms, focusing on specialists often yields better results.

Sweet spot: Determine the ideal company valuation for the PE firm’s investment. Most PE firms aim to allocate around 10% of their fund size to each acquisition. Ensure your company’s valuation aligns with their sweet spot to increase the likelihood of interest.

Reputation: Work with reputable firms known for treating their portfolio companies and their employees well. Research their past investments and talk to entrepreneurs who have previously sold their businesses to these firms to gauge their experience. Due diligence in PE deals should always work both ways. 

Selling your business, especially if it is something you have grown from the bottom up, can be an emotional process as you are relinquishing control, so doing ample research into the PE firm possibilities can help to lessen some of these concerns.

Approaching PE firms

Once you have a shortlist of potential PE firms, it’s time to approach them. This is a step-by-step process of how the process can often take shape:

Initial contact: LinkedIn can be a great platform to reach out to PE firms. A simple, direct message works best: "Hi, I’m the founder/CEO of [your company]. I’m starting a selling process. Would you be interested in exploring the option for buying?" If the firm is interested, they will request more information and possibly a meeting. If it is an immediate no, they are likely to have been the wrong type of firm so use this information to refine your targeting. 

Prepare your deck: Create a compelling pitch deck that provides a clear overview of your company. The deck should be concise, ideally around ten pages, and cover the following aspects: 

• Company history and mission
• Overview of products and services
• Market position and growth potential
• Financial performance and projections
• Management team and their expertise
• Reasons for selling and future plans 

Practice your pitch: Before pitching to your ideal PE firms, you could practice with firms that don’t quite meet your criteria. This helps you refine your pitch and gather valuable feedback without risking your primary targets. Start with three firms that are slightly outside your geographic area or market segment but still relevant. Ask for their opinions on your pitch, and use their feedback to make improvements .

The coffee check: After the initial contact, arrange a face-to-face meeting if possible. A casual setting, like a coffee meeting, allows both parties to gauge each other’s compatibility and working style. It’s a crucial step to determine if you can build a productive relationship with the PE firm.

Presenting your company

When you’re ready to pitch to your shortlisted PE firms, ensure that your presentation is polished and tailored to their expectations:

Highlight key strengths: Emphasize the aspects of your business that align with what PE firms look for: profitability, growth potential, and hidden value. Demonstrate your company’s ability to generate consistent profits and outline clear plans for future growth.

Showcase management team: PE firms invest in companies they believe they can grow, often without changing the core management team. Highlight the strengths and achievements of your key executives to build confidence in your leadership.

Present realistic financials: Provide accurate and realistic financial projections. PE firms will conduct their own due diligence, so transparency is critical. Explain any non-recurring revenue or costs that might distort your financial picture.

Prepare for due diligence: Conduct a virtual due diligence (VDD) process internally before the PE firm does theirs. This involves scrutinizing your own financials, operations, and legal standing to ensure there are no surprises during the actual due diligence process. This preparation helps in negotiating a fair price and avoiding last-minute issues.

Negotiate wisely: Be clear about your valuation expectations and be ready to negotiate. Use feedback from initial practice pitches to understand the range of multiples you can expect. Start negotiations on the higher end of this range and adjust based on the responses you receive. 

Thriving in the long term

Approaching and pitching to PE investors is a meticulous process that requires strategic planning and effective communication. By identifying the right PE partners, preparing a compelling pitch, and presenting your company transparently and confidently, you can increase your chances of securing a successful investment.

Remember, the goal is not just to sell your company but to find a partner who can help it grow and thrive in the long term.

Alexis Sikorsky started a software development company in 2000. Twenty years later, he sold the company for a nine-figure sum. He has distilled decades of insights into his new book Cashing Out which explains how business owners can develop effective growth strategies leading to a PE exit

Main image courtesy of iStockPhoto.com and Gwengoat