As an entrepreneur who has set up a business and watched it grow and weather tough storms, it can be thoroughly disheartening if you reach the point where you have to sell up to a private equity firm, or, a PE firm acquires your company. But while this has far-reaching impacts on the business as a whole, what are the individual impacts on the company from your perspective, but also from the employees, and also, what happens to the welfare of the business?
First things first, the business is going to have some considerable changes. When a private equity company acquires a business, they do what is necessary to bring the company back up to speed, by which point, they sell it for a profit and move on. Because a private equity company can do anything to the business, because they have legally acquired it, it can be frustrating for everyone who has been with the business from year zero. Although sometimes, private equity companies don’t acquire the whole business; on occasion, they will purchase assets. But, it’s never a lifetime acquirement, and 5 to 7 years after the firm buys the business, an exit strategy is very likely formed. The business could become part of a strategic sale, or it could become part of publicly traded stock. Of course, this means there is going to be a lot of changes at the outset. The PE firm will very likely impose new rules and regulations to keep the business productive. They tend to communicate specific timelines and milestones instead of an entrepreneurial vision. They will initiate far more scrutiny of the process, not just from the top down, but from the bottom up, and there will also be pressure on quarterly progress. This means that your employees will have a lot more individual pressure placed upon them.
The buyout process can result in a lot of job cuts. This is one of the signature processes of private equity companies. Because the PE company needs to turn the business into an investment that is profitable, some of the old guard might be let go in favor of new talent that the firm pick themselves. As a result, there could be a lot of unhappy workers, especially those that have stuck with the business. As the entrepreneur, you need to have foresight of the bigger picture. By knowing that the takeover could yield a more positive result, the concept of the bigger picture is something that you need to keep in mind. And yes, it can be a very difficult thing to hold onto at this point. And with the imposing rules and regulations, there could be a major shock to the system in how your employees are used to working. As a result, if they are extremely unhappy with how everything has changed, they won’t have the same enthusiasm for the work as they once did, and as a result, productivity could drop. But also, you might find employees looking to jump ship. This is something that might not be beneficial to the business, especially if these are people who stuck with the company from the outset.
As the entrepreneur, it can feel a bit heartbreaking to see your business change so much. However, taking a pragmatic approach to this point might be the key to saving your business. Yes, there are many different changes afoot, but it’s about how you learn to roll with them. This article by Jozef Opdeweegh highlights what can happen in a business during these types of takeovers, so it’s more about being prepared for every eventuality. If the firm you are working with are open and receptive, this is going to help for a more productive relationship, but it’s important to know that they will throw their weight around. From a personal perspective, you can feel like you’ve made too many changes, which could be to the detriment of your business. But, as private equity firms are there to turn a flagging business around, taking the positive perspective in the fact that the company will turn around in the end could be the light at the end of the tunnel.
Any type of takeover can like a failure, but, if you’ve been fighting to turn around your business for so long, you need to get some help. And while there could be so many changes thrown up on the acquiring of your business by a private equity firm, you will know if it’s going to benefit your business in the long run. Yes, it can be heartbreaking, but it can be a big help.