Selling Company to join a private equity fund
Bought a business a couple years back as a "self funded searcher." Have an MBA from an M7 school and Ivy league undergrad. My company does low 7 figures (on the higher end) in ebitda and over 8 figures in revenue. Grew it over 50% since purchasing.
Honestly, looking back, I wish I had just got a PE job and rose, but I was an entrepreneur most of my life and didn't have the typical background. Yes, I am probably worth more than a MM/LMM PE VP my age, but it came at a huge cost on my personal life and mental/emotional health.
I'm exhausted of operating and want to join a LMM or MM PE fund as an investor. I enjoyed sourcing and completing my deal, but operating has sucked the life out of me.
Would it be possible for a LMM/MM PE fund to take me on? I am in my early 30s. More than happy to invest a couple million as an LP upon sale of the business if need to be.
Your entry to PE will probably be as an operating partner. Path would be to sell your current company then either launch another search fund or land a C-Suite role at a PE-owned portco and stay there until another exit. By that point you will have enough operating experience to join a firm as an Operating Partner.
You didn’t say what your career was before your current search fund. Were you in IB? Otherwise you just don’t have the deal flow experience to enter PE mid-career.
Congrats on successfully growing/turning around a company though. It’s a lot of work but can be very lucrative. Just to give you some perspective, some people in IB/PE would be envious of your management experience. Grass isn’t always greener :)
I was not in IB, was a entrepreneur my whole life.
I don't want anything to do with operations anymore. I want to be on the investing side. Is there any way for me to make an entry?
>burned out
>wants to join PE
my brother in christ, this is not the way
I'm not trying to give out to much here, but I did work a top FO job with 80 + work weeks unrelated to private equity.
I would have undoubtedly stayed in that job looking back after seeing how much of my life was sacrificed (relationships, health, financial pressure, lawsuits I've dealt with, personal guarantees on loans), even if I would have made less/saved less at this point of my life.
Please don't complain... all you need to do is execute. So much can go wrong/on the line when running a business. Grass is always greener.
I empathize with you, and most bankers/PE people won’t get it. I did 10 years in banking, including stints at GS and Citi in NYC. I worked 90 hour weeks, etc. Being an entrepreneur is so much harder.
I started a company that I ran for 11years as CEO and grew it to ~240 employees. I left last year due to burnout and the needs of my job. I went from working on product and talking to customers/selling to spending most of my time on HR and board management. It just isn’t what I want to do, despite the success and continued growth of my company.
I took the past year off and am starting to think about what is next. I’d be happy to be a COO or CFO of a backed company or something in VC or corp dev. I just don’t want to be a CEO again in the near term. Board management and dealing with whining employees sucks.
Depending on the size of the business, why not just sell a big chunk to a PE fund and take some position that is less involved in day-to-day operations? Why would you want to become a PE Excel monkey yourself? If you have "a couple million" but want to invest just do seed investing or join a growth fund
This is the way. A lot of PE buyers will likely want you to stay on and may even require it as part of the deal. Great way to semi-retire, take more of a strategic advisory role and still get a paycheck from the business even after you sell.
That'll also likely come with the opportunity (or requirement) to roll some equity too so you get to let an institutional PE shop try their hand at adding operational value and taking care of the nitty-gritty. Just make sure to sell to someone who actually knows how to run a business. Some of these LMM guys buy shit and just expect it to run itself flawlessly with absolutely ZERO backup plan or competency to intervene if things get off track.
As for taking an investing role, you get to be involved in that if you're on the operations side of PE, but you aren't the chief architect or underwriter of deals. Those guys come from transaction backgrounds though, whereas you are an ops man through and through it sounds.
Congratulations on your success.
One path you haven't mentioned is doing this again but with an actual bench to help you out. Consider finding a high-quality sponsor to sell your current asset to, then hiring one or two really sharp guys to be the point people on your next thing.
That next thing could follow several forms.
You could do another self-funded search. This time will be different. You've been in the trenches and know where to practice efficiency, which you now can by either shunting the must-do workstream to your new principal/partner hires or acknowledging it as a nice-to-do workstream that can be deprioritized or ignored.
You could raise partner capital, which will be pretty easy given your track record and presumable multi-million dollar commit of your own.
In either scenario, you make your new team do all the work. Tell them what to do, walk out, and check in to review it when they've done it.
You need a couple years to live a life again. Being in the driver's seat is consuming in a way words can't express. You know looking in the mirror every day how low the flame within you is flickering. Don't join someone else's fund. It's going to be so itchy for you. There are politics. People who have done objectively less than you will have decision-making power over you. Even if you join as a partner, there's a committee, there's 'the way things are done here', there's nonsense.
Monetize your asset, give yourself a year off to recuperate, talk to principal level people to see who is actually smart, who is entrepreneurial and practices initiative, who is humble and hardworking, and think about doing it again but as the coach now rather than the solo player.
Godspeed.
Some great advice here, thank you.
I don't want to do another self funded search. If I did, I'd want to buy another company, larger than what I own now. As you know, multiples get much higher as you start creeping into the 5-10+ mill range in EBITDA. I'd probably have to raise a ton of equity that would probably yield me less economics than just holding the company I own now.
Sourcing is another challenge, especially in today's market. I'm competing against way more sponsors compared to before.
Would prefer to be in the position of having deals being sent to me and deciding whether to invest in them or not.
Maybe joining a microcap (riverside for example?) or an SBIC fund?
Sure, you and I are talking the same language. I'm sorry I wasn't more clear in my first post, let me unpack in more detail.
You absolutely should be buying a business significantly larger. I have two points: one about partner capital, and the other about your differentiated sourcing.
There is absolutely a market for co-invest or 'direct' equity that will pay you well. This can look like an investor in a pref class with a mid teens coupon. e.g. You raise $100m, they are entitled to a 15% annualized return at exit, you get everything above. You have probably seen this type of structure in the search fund world. There's also the country club model: 8% hurdle, 50/50 over that.
The best bet for this is going to be family offices. Find a personable guy at a middle market investment bank to start putting you in touch with these type of people. It won't cost you anything, you don't have a transaction lined up. You can do this for a year or two just to meet likeminded people and start to figure out who looks at the world in a similar way. Or you can just very explicitly hire a bank and say you're looking for equity partners under certain parameters before going to find a deal.
So if you find an asset that requires a (made up number) $50m equity check, my point is you can absolutely create an outcome for yourself that pays you better than simply holding the current business. People will love you because you're actually the guy who's doing the work. They can park money with you while you sweat to make the results happen. This is a very different dynamic than raising money for a fundless sponsor transaction.
Let me be explicit. 'CEO putting up ten million and asking for fifty more for a thing he's going to run for five years' is a world away from 'independent sponsor asking for 97% of deal equity for a thing they're going to try to flip in three'.
Secondly, yes, you absolutely will compete against sponsors. The primary derivative of this is that you'll pay more due to increased competition. Secondary is whether it's outbound or inbound work on your part. There are so many ways you can minimize the stress or effort of this. You can truthfully hold yourself out as a rare thing in this world: an operator. You can talk to founders and owners as kin. It's an easy suggestion about their potential transition, it doesn't feel like you're being a money salesman.
Yes, you have to talk to people still, but there's lots of ways to shift the brunt of the grunt work away.
Hire MBA students to help. It dilutes the "I'm an operator" messaging, but it's fast and cheap and can be effective.
Hire someone from private equity portfolio operations. They know the private equity game well, but they don't scream "finance hardo" in the way that turns off so many owners.
Take the long game. This could be two things. Either teach someone younger how to do these conversations well, or do all the conversations yourself at the pace that feels natural and not tiring to you. All the seeds you plant across two or three years are going to bear fruit across a decade. I get people calling me with opportunities today who I talked to five or seven years ago.
Overall I'm trying to say that you can sell your business, take a couple years to lay back and recharge, and do this on your own terms in a way that's different from the crowd while also being entirely less taxing than you've experienced it to be so far.
Basically: execute, reap, reassess, reposition.
My own path has taught me the simultaneous power and necessity of this. I had a period of killing myself (honestly) where the wins I put up came only from brute force. That isn't sustainable, and I experienced it in the worst way. Today I move in an entirely different way.
I enjoy this thread a ton, keep writing or send me a PM.
Jim Ratcliffe is the richest man in the UK because he went in the other direction, and his example is instructive…going into PE isn’t really what you want to do.
Sell your company and buy another with PE money and hire a good team - or raise some money from PE and use your company to acquire another with a deeper bench to offload your burden.
Multiples increase the bigger you buy but that’s why it’s better to roll-up up three cheap $2mm EBITDA businesses instead of paying up for one $5mm EBITDA one. Even better, roll-up three $20mm EBITDA businesses and sell it as a $75mm EBITDA business at an even higher multiple to a megafund.
It’s much easier raising $300M for a single roll-up that you as seasoned operator is putting $10M into vs raising $300M in a first time blind pool. And if you work for a fund that has raised already you’re just an (senior) employee. If you think managing people is draining, try being managed by some clown younger and poorer than you with a superior complex.
Finally, twenty years ago pensions had low single digits if anything in alternatives, now they’re 20%+ and too illiquid. It’s no longer a secular growth market and there is too much capital chasing too few deals. You’d rather be the entrepreneur raising from or selling to PE.
By the way, sitting back and waiting for deals to show up…it never works like that. Incoming deal flow is competitive by nature and often results in an auction that you win either by having lowest cost of capital (i.e., shittiest returns) or best operational capability. Usually that is focused on a particular space where you have proprietary knowledge and access to dealflow. In other words, you’ll be doing the work sourcing the really interesting deals and building teams to manage the company post closing.
What space is your company in and where do you see opportunities going forward?
Understand you're burnt out and I don't have much advice to give (other than PE is also a bit of a slog), but can you do an AMA or thread on your story, deal sourcing and management of the business? I've read buy and built, Harvard business guide to buying a small business, listen to 'small' business acquisition podcasts daily, not once has anyone mentioned being exasperated with running the ops, bad deals - yes, but not the running of the business. would be great to hear the reality if your story.
The types of deals you can buy as a “self funded” searcher are inherently more operationally demanding (hence the lower multiples and why they can be financed with hardly any money down). The value add is to create a management team and position it for a sale to private equity.
The traditional search fund guys target businesses with full mgmt teams in place (3-4 million + in ebitda), but don’t keep much if any equity.
The process from taking a 1 million sde company to 3 million ebitda company is no easy feat.
Seconding this ask for an AMA!! I have a 100 questions to ask you. Current operator who just left high growth startup exec role to pursue PE roles full time. Thought I wanted internal fund portfolio strategy / operations roles but am now being pulled to portco CXO roles. I have so many questions I’d love to ask you!! 😀🙏🏼🙏🏼🤞🏼
Operator does not automatically translate into good investors, and building and exiting one company does not automatically mean you can do it again.
I agree with above comment, if you join someone else' fund, you will always have an itch and still work as hard.
PM me if you'd like to discuss further - I have some thoughts.
As you probably know, 50% of the battle is identifying the right company to purchase. I analyzed over a 1000 businesses before purchasing this one.
True, but who says I can't learn now in life to become a good professional investor? Yes, I don't have the experience having to invest in multiple companies, but so what?
Part of being a successful good operator is knowing where to allocate your resources (being an good investor)....
PE is a major pain the ass and takes a decade plus to make real money. Choose wisely.
Seconding all the thoughts above. Everyone in PE wants to leave to go do what you did so they can do it a second time with more capital and a day-to-day operator below them. I understand we may not appreciate the pains you went through and are likely overestimating the "dream" but nonetheless...
Also echoing that you're going to have a hard time eating orders from people that have achieved a fraction of what you have and frankly, in most cases, are likely not as smart and have less insight.
What are the chances we get an AMA at some point? I think a lot of people here would be interested in hearing your story and the realities of buying and building a small business.
What about going the route of a lot of exited searchers and start a small fund and back other searchers?
There's more investors than there are quality searchers. Too much capital out there....
I would agree. Was more of a a brainstorm vs. a judgment on the space
What about exiting to PE and setting up shop as an independent sponsor? Live off your gains for a bit while you get set up, raise capital from HNWIs, FOs, or PE that backs independent sponsors on a deal by deal basis, build a portfolio of a couple deals, and if you develop a decent track record you can raise your own committed capital fund.
Selling your company first is a good idea, because it gives you a full "round trip", the returns aren't just on paper, they're a real track record. Find someone with some more traditional PE deal reps experience to partner with, pick a good legal counsel and fund admin, and figure out what it is that you do that's different or special (could be a sourcing network, could be operational expertise / sector experience).
Similar boat a few years ago but decided to do my own thing.
I think you're better off simply buying a company upstream that is large enough to have a real management team. Probably needs ~$3m - $5m in EBITDA. You can partner with a PE firm to do that if you want to make things easy on yourself.
Honestly, I think working for a PE firm is untenable for a great entrepreneur. PE, unless specialized in your space, is not able to understand risk properly in a way that works well for an entrepreneur capable of producing exceptional results.
It's because they are playing not to lose and the great entrepreneur is playing to win.
What are multiples like for companies in that size range these days with a full mgmt team?
I am unfamiliar with multiples outside of my specific flavor of consumer. For the companies we own at say $5m in EBITDA, I would expect ~9x - 12x. Above avg EBITDA margin + growth though.
I work in the LMM at this EBITDA range you mentioned and would disagree with m_1 around his comment on multiples - those sound like more in line with sexier consumer businesses but if you're talking boring unsexy companies (niche manufacturing, service providers, etc.) multiples in this range are much more common to be around 6 - 8x. I'd say even ~5x would not be unheard of but then you're wading into the territory of a hairier deal (maybe less of a management team or structure etc) at this EBITDA range.
too much competition from LMM PE shops at this size. and depending on the industry, the multiple would be a few turns lower.
Can you expand on this point about risk? What do you mean they’re playing not to lose? Isn’t that case only if the portco doesn’t need significant work? And don’t most need that now? 🙏🏼🙏🏼🙏🏼🙏🏼
no one's ever happy
Cant you train someone to take over most of the day to day from you? Sure, you’ll need to pay them well, but seems like you can afford it and it’ll improve your quality of life significantly.
I have to second the above comment related to finding a good operator. If you can find a good operator, your life will be made so much easier without having to go through the pain of transaction AND having to find an operator. My dad owned car washes and didn't visit them for years since his operator was so good. If you're going to try doing something like selling on BizBuySell.com or something similar, I would really try to find an operator since you might be able to keep making money from the business without even having to run it. I'd think better do that than sell off the hard work you've spent several years on,
Curious, how does one find a good operator for their business? Is that the same as a manager who runs the day to day essentially?
Really wouldn't recommend this route unless you were gunning for some sort of "operating partner" or C-suite at a larger company. Ask around in your network to people who are in similar roles, this seems like a "grass is always greener" type of scenario.
What was the most difficult part of operating a company?
Feel free to DM if you'd like to connect. I'm a career investor around your age that only worked in PE/HF. I'm now working on my own thing to pivot to hybrid SMB investing/advisory/operations.
I echo a lot of people above that I'm skeptical that joining a PE firm as a regular investment professional would be enjoyable to you. Grass might seem greener, but even at the best brand-name firms, the traditional PE pros are risk-averse conformists that follow a "check the box" mentality. You will get frustrated to no end answering to these people who have close to no idea how a real business is run. Most of them are just parading around hawking the goods they learned from their pitchbooks and models and MBA programs, trying as hard as they can to appear authoritative and credible.
If you want to take yourself out of the day-to-day operating, I would recommend networking with like-minded LMM sponsor or search fund/family office to build out an acquisitive platform/holdco. You can act as a highly engaged board-level resource to support each operator in your businesses, but keep variety through constantly moving on to the next opportunity once a new investment is set on the right track. Or just move on to become an entrepreneurial search fund investor who cuts checks to others that wish to walk your path and provide advice and resources.
For good reasons, I don't think you'll last a year answering to some MD/Principal wanting you to turn the deck v105 for a stupid IC memo on the weekends to make ~$500K a year. Also, I don't necessarily think former CEOs make for good PE professional. It's not hard to be a PE pro but it is definitely a specific skillset that is different from running a company. I've worked for a famous former CEO that has scaled to 9-figure revenue who later turned into PE partner, and it was not a good fit. Mostly the issue was that he joined an already established shop with a very specific way of doing things and looking at investments, which did not play to his strengths at all. Don't assume that PE partners will roll out the red carpet for you to fit their investments to your style just because you have a CEO background. They mostly could not care less and just want to continue doing what they know.
I think this is very well said.
Well said
Bang. On point.
Omg hi would LOVE to chat. PMing you now.
Depending on the industry you would be a great fit for some funds I know. DM me
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