Six Things to Know When Negotiating with a Private Equity

Private equities have well prepared specialists who know how to satisfy their interests and buy at very attractive prices. They will be your partners and you will have to trust them when they become part of your company, but before this will happen, they are your opponents and you should be careful to protect your interests. In this article you will learn about six methods you can use when negotiating with a private equity firm. Continue reading!

3 recommendations before sitting at the table 

1. Don’t negotiate only with one private equity firm. Prepare alternatives, whether they are private equities or other type of buyers and investors. If you only negotiate with one, you will lose negotiating power.

2. Use a M&A advisor. The sale of a stake to a private equity is usually a more complex process than selling to an industrial investor. Therefore, we strongly recommend that you don’t embark on negotiations alone; hire a professional advisor who is as prepared as your counterparty is.

For every one hundred projects presented to them, private equity firms only invest in one or two. That is why it is very important to prepare good documentation in order to pass the filters of many PEs and create competition.

3. Clean the mess. Business owners sometimes mix family and business properties and they incorrectly charge expenses to the company. This means that profits are officially less and therefore taxes will be less too. Other times, with the same objective, certain incomes are not declared. Both of these techniques will create problems if you’re trying to sell, as the investor will only pay for profits that are official. Other incomes and profits do not exist until they’re official.

When there is a lot of unofficial money, private equity firms prefer not to invest as they believe that too many tax risks exist. Therefore, if you want them to invest in your company, an important step to take is to start making your finances official and cut out all bad tax habits you might have.

When sitting at the table negotiating with a private equity

4. Be realistic with the business plan. Your information memorandum should describe the amount of resources you are hoping to get and what you plan to do with them. The document should also include a sensitivity analysis and the expected return on investment for the private equity firm.

If they see a plan where sales growth is not realistic, expenses are wrong, there is a lack of foresight and so on. This can cause distrust. Make sure your plan is coherent.

5. Prepare for a cut after the due diligence. They will try to make the most of the confusion with all the data taken from the due diligence to negotiate aspects where contingencies haven’t emerged. For that reason you must remember that negotiations continue until the very end.

6. Conduct your own due diligence of the private equity. You also need to analyze the private equity firm you are negotiating with. A good way of doing this is to speak with other owners who have worked with them. Private equity firms usually put the companies they have invested in on their website.


You already have a plan for the growth of your business and you know that you a private equity firm to carry out it. But who can take on this role? Where can you find the right partners? And most importantly, will they want to invest in your business? At ONEtoONE we couple our unique research and mapping methodology with our extensive global network, to attract and select the best possible investors for your company. Don’t hesitate to contact us for a strategic advisory!


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