Podcast: executive sessions – demystifying private equity for business owners – MiddleGround Capital
June 20, 2024

Podcast: executive sessions – demystifying private equity for business owners

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On MiddleGround’s eleventh episode of Executive Sessions, Clayton Gullet leads a discussion with our Director and Head of NA Business Development, Dyana Baurley, recapping her interview with David Bookbinder on the “Behind the Numbers” podcast. This episode covers:

  1. Private Equity as a Liquidity Strategy
  2. Factors Making a Company Investable
  3. Aspects of Selling a Business
  4. Overcoming Misconceptions about Private Equity


Private Equity as a Liquidity Strategy

Private equity firms utilize a variety of investment strategies to suit the many types of business needs in the market. Each strategy offers distinct advantages or disadvantages, but no matter what, private equity provides liquidity that can enable businesses to expand, modernize, or navigate financial challenges without the pressure of a public offering or heavy debt.

  • Growth equity focuses on providing capital for specific projects like expansion into new product lines or markets
  • Venture capital focuses on pre-revenue businesses that need capital injections to grow
  • Controlling interests indicate that a private equity firm acquires, or buys out, full ownership of a company
  • Minority investments mean that a private equity firm acquires partial ownership of a company

As a seller, understanding the type of private equity strategy that suits your needs is essential. Some may be searching for financial backing with minimal operational interference, while others benefit from hands-on partnerships and wish to leverage the expertise of a specialized private equity firm.


Factors Making a Company Investable

When evaluating investments, several factors determine whether a company is found “investable”. A business must have the basics, like a competitive advantage and growth opportunities that demonstrate the potential for expansion into new markets, acquisitions, and increased profitability. But the key element we look for is whether a company has a fundamental reason to exist, regardless of macro conditions.

An example of this is our acquisition of Lindsay Precast, which focuses on updating antiquated water infrastructure, over a similar company that focused on running water lines to new residential and commercial construction. While new construction is a lucrative industry, Lindsay Precast was aligned with our infrastructure thesis. This decision highlights our principle that “all businesses are great businesses, but is this a great business for us?” This approach ensures that our investments are not only profitable and benefit from our operational approach, but also strategically align with our long-term goals.


Aspects of Selling a Business

An owner selling their business is one of the most complex and emotional processes of their career. Oftentimes they are parting with a company that they built from the ground up or a family-run business that has existed for generations. This very personal decision can be complicated by the overwhelming level of documentation required to begin a sale process. There is extensive financial reporting required, which is daunting for those not familiar with such rigorous documentation.

These elements are why investment bankers play a crucial role in this process. They provide value as trusted advisors guiding owners through the emotional elements of sale while providing crucial input on the best types of private equity buyers and supporting documentation needs. Additionally, investment banker’s expertise enhances deal credibility and their relationships across the industry allow them to get sales in front of the best buyers.


Overcoming Misconceptions about Private Equity

A common fear among business owners is that private equity firms acquire companies to gut operations, lay off employees, and make a quick buck. These fears often stem from a lack of information or perceptions warped by the “bad players” in the industry. Many firms like MiddleGround focus on building sustainable growth rather than stripping assets.

Fostering trust is key to overcoming such concerns. Many of our leaders are shop floor workers and show up in jeans and sneakers to meet owners. Honesty about intentions and an authentic, transparent approach to relationship building can go a long way in demystifying private equity for business owners and building lasting, productive partnerships.