Preparing for Private Equity | Private Capital 101

Private equity investment can be an effective way for businesses to raise capital and grow their operations. It is typically suitable for growth-oriented, later-stage companies often pursuing further expansionary growth, ready to execute a full or partial exit for owners or those looking to optimise their capital structure.

Whilst we recommend that your EBITDA (Earnings Before Interest or Taxes) be at least $3 million to $5 million to attract the best pool of private equity interest, this is not a hard-and-fast rule, and we recommend consulting with your adviser to determine your readiness.

If you are unsure whether private equity is right for you, try our five minute Investor Readiness Tool.

The preparation phase of the private equity investment process typically takes six to nine months and focuses on three key areas:

  • Agreeing on a deal approach and timeline internally
  • Identifying risks and plan mitigation
  • Preparing the deal materials (including marketing and pitch).

Preparation for private equity investment requires a strategic approach to ensure the best outcome for the business and its investors. Here are our recommendations when preparing for private equity investment.

Determine the purpose of the investment

The first step in preparing for private equity investment is to determine the purpose of the investment. This involves assessing the current state of the business, identifying its strengths and weaknesses, and setting goals for the future.

For example, the purpose of the investment may be to fund new product development, expand into new markets, or acquire another business. Having a clear understanding of the purpose of the investment can help the business communicate its vision to potential investors and ensure that their goals align.

Conduct a thorough business assessment

Before seeking private equity investment, it is essential for the business to conduct a thorough assessment of its operations. This includes reviewing financial statements, analysing market trends, and assessing the management structure and processes of the business.

This assessment aims to identify areas where the business can improve its performance and increase its value. This can help the business present itself in the best possible light to potential investors and increase the chances of securing investment.

Develop a strong business plan

A strong business plan is essential when seeking private equity investment. This plan should outline the purpose of the investment, the business's current state, and future goals. It should also include a three-way financial forecast (balance sheet, profit and loss and cash flow) and a detailed plan for how the investment will be used.

The business plan should be clear, concise and demonstrate a strong understanding of the market and the competitive landscape. This can help potential investors see the potential for growth and value creation and increase their interest in investing in the business.

Hire professional advisers

Seeking private equity investment can be a complex process, and it is essential for businesses to have the right advisers on their team. This may include financial advisers, lawyers, and accountants who can provide guidance on valuation, due diligence, and the negotiation of investment terms.

Having professional advisers can help ensure that the business is well-prepared for the investment process and protect its interests during negotiations.

Create a strong management team

A strong management team is essential for any business seeking private equity investment. This team should have the skills and experience necessary to execute the business plan and achieve the goals of the investment.

Having a strong management team can also help increase the confidence of potential investors, as they will see that the business can execute its plans and deliver results.

Key takeaways

Preparing for private equity investment requires careful planning and execution. By taking the steps outlined above, businesses can increase their chances of securing investment and achieving their growth objectives.

Contact us

If you are interested in how BDO can help you with your Private Equity needs, please contact our Private Equity team.