Mergers & Acquisitions, Compraventa de empresas

8 Things Private Equity Firms Look for in Companies

Private equity isn’t for all types of companies. They look for businesses that show clear growth potential in sales and profits over the next five years. If your company can’t offer this then they won’t be interested in investing in it.

If the market you work in or your company is growing, a private equity firm might be able to help you. They might also be able to help you recapitalize your company, exit it or make a transition so that the management team buys it.

The First 4 Things Private Equity Firms Look for in Companies

– A good management team: except when the plan is to change managers, the quality of manager is a decisive factor for private equity firms , as they won’t be involved in the day to day running of the company- the managers will.

– A market segment that has growth potential: this is also an important aspect because private equity firms need high rates of growth. Another objective of private equity is to get a bigger market share, which makes it important that the company is well positioned to grow within its sector.

An ambitious but realistic business plan: a poor business plan with meager growth is of no interest to them. If the plan predicts important sales and profit growth, then make sure you can back it up with facts. Everything should be coherent.

– Clear exit strategy: private equity firms  say that when they study a company they dedicate 50% to studying the investment and the other 50% to studying how they can divest after a few years. Therefore, when they invest they normally know how they plan to exit. I advise you to ask them before how they plan to do this.

Private Equity Firms Look for the Return on Investment

We are almost there! Just 4 more points left.

– Security: unlike banks, private equity firms don’t know what their return on investment will be. In fact, they might lose everything if their growth plan doesn’t work and the company ends up on the brink of bankruptcy. Private equity firms feel more secure if they get seats on the board so that they can influence the management of the company, agreeing or vetoing changes made to the original business plan. It’s very important that you negotiate all these aspects well so that the shareholders agreement is balanced and that both parties are protected, not just the private equity firm.

– A contingency plan: in every business there are ups and downs. Understanding what could go wrong and having a contingency plan ready in case it happens is very important. It will help build trust.

– Reputation: people are key in companies. Because of that, the reputation of your managers in the market will be checked out before investing.

– Return on investment: return is closely linked to entry price. If the company is very attractive and there are competitors trying to invest in it, private equity firms will be more willing to invest greater amounts and receive lower returns.

We don’t recommend negotiating with only one private equity firm as it gives them more negotiating opportunities. Creating competition usually leads to a higher price and a better agreement. Anyway, you must be able to create it, and that means having a good business plan and well-written documents as well as searching for the most adequate private equity firms.

When negotiating with a private equity, as well as correctly valuing your business, you will also have to go through different stages to help you maximize the final price. Do you know which ones they are? Download the eBook “HOW TO MAXIMIZE THE PRICE OF YOUR COMPANY”!.


A private equity is very specific when looking to make business, not everyone is suitable. Having an expert guide you to figure out whether a private equity is an option for you is a good idea. However, if it turns out that option is not a good fit, then you should think about what the next step could be. To make the right decisions, you may need help from experienced advisors. Don’t hesitate to contact us for a strategic advisory!


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