Selling a Business Twice: PEGs
1 November 2021: Selling a Business/PEGs Part 2
At the end of last week’s post – Selling a Business Today: PEGs – your intrepid reporter mentioned that when targeting PEGS – private equity groups – as potential buyers of the business you’re bringing to market – there were considerations other than those mentioned in the post. And such other considerations are both good and bad – and occasionally both at once – when selling a business. But before getting started on some of those consideration, a little clarity about our topic is in orderPEGs, Family Offices and High-Net-Worth Individuals
In the Main Street Market of business acquisitions, where the businesses are generally “mom and pop” – businesses with valuations of up to $1 million or $1.5 million – the buyers are also generally “mom and pop”; individuals, spouses, a couple of buddies or a desperate parent hoping to find something for a wayward child to do. But when selling a business – as either a business broker or business owner – once you get up into the lower Middle Market – businesses with valuations up to about $25 million or so, the buyers become more sophisticated and, as a result, the deals more smooth.
PEGs as Buyers: Pros and Cons
We’re constantly receiving inquiries from smaller PEGs. Because we work with businesses with valuations up to only about $25 million – and because we publicize that range – the PEGs and family offices that contact us are smaller ones. Not surprisingly, the financial descriptions they provide of the businesses they’d like to find are remarkably similar; revenue between $5 million and $20 million, DE between $500,000 and $5 million and geographically located in North America. _____________________________________________________________________________Our course, “Learn How to Value and SUCCESSFULLY Sell Businesses“, teaches you how to value and sell businesses.
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As I explained last week, PEGs are serious buyers; well-capitalized and able to pull the trigger quickly. But they’re also picky. They want businesses that can scale. PEGs, large and small, have plenty of money to spend and they have to invest it – fairly quickly because they have to return it (with a handsome ROI) to their investors in a fairly short period of time. PEGs acquire multiple businesses but they generally don’t have the in-house talent to run them. They’re investors. As such, they look for businesses with solid management teams in place.
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If the seller was young enough – and patient – this type of buyer could offer the seller the unique opportunity to sell their business TWICE! How so? Because the PEG has a relatively short turn-around time – and has to grow the businesses it acquires. To effect that growth, a PEG plans to invest in the business in the hope of supercharging it.
Let’s Do Some Math
DISCLAIMER: The following is a simple example used only to illustrate in general terms how working with a PEG can offer the opportunity to sell a business twice – and it assumes that a business broker, one that know swhat the heck he or she is doing, is involved.

The Downside

The Bottom Line
If you’re selling a business that is large enough to interest private equity groups – and that’s almost any business with revenue of $5 million or more – advising the seller on this option – and its pros and cons – is important. It’s yet another aspect of managing the client’s expectations. PEGs are serious and well-capitalized buyers that don’t have time to waste; they won’t waste yours. These characteristics generally makes them easy to work with. But, as with all facets of selling a business, there are issues and aspects that can cause some concerns. Our clients must be made aware of the potential pitfalls as well as the possible upsides. If you have any questions or comments on this topic – or any topic related to business – I’d like to hear from you. Put them in the comments box below. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.Searching
This week’s “Searching” item comes from a family office-sponsored private investment fund looking for a lower Middle Market business with between $5m and $50m in revenue with discretionary earnings of between $1 million and $5 million in the traditional B2B services and healthcare spaces. If any of you know of something that might fit, please let me know.I’ll be back with you again next Monday. In the meantime, I hope you have a safe and profitable week.
Joe

The author is the founder of Worldwide Business Brokers and holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) of which there are fewer than 1,000 in the world. He can be reached at joe@WorldwideBusinessBlog.com