|
|
 |
|
| Feature |
The Tables Have Turned: Private Equity
Eileen P. Gunn
08/01/2005
|
That was before they tried surfing the
private equity wave. “I introduced them to some private equity firms, and within
10 days we had 15 offers,” Cobb says. They found a private equity investor that
could provide the money and structure that the company required, but that would
also let them remain with the business. The firm agreed to buy only half the
company, and it paid more for half than the owners thought they would get for
the entire business, Cobb says.
| Middle-market private equity firms have an added advantage: Complex and
burdensome Sarbanes-Oxley regulations have made it harder for small companies to
be publicly traded these days. And with analysts and institutional investors
ignoring them, it is less worthwhile as well. Nearly 150 public companies did as
the Dwyers did and went private in 2003 and 2004, according to accounting firm
Grant Thornton. Countless companies that might have gone public have been
looking elsewhere for the capital they need to grow and make acquisitions or to
allow an owner to sell out and retire. |
Troy Noard, a managing director with
Frontenac, a private equity firm in Chicago, says competition for high-growth
companies has intensified lately. “In the last few years, private equity firms
have gotten very proactive about going out to find deals rather than waiting for
investment bankers to bring them deals,” he says. “We know that everyone who’s
attractive has been contacted by somebody. And any deal we go into, we won’t be
alone.”
Noard finds himself working to convince the business owners that his
firm will be a good partner for them more than the companies are working to
convince him that they are a worthwhile investment. For business owners, this
new balance of power means that they can take their time, investigate the
private equity firms and negotiate from a position of strength.
Two-Way Scrutiny
Michael Halberda, president of Healthcare Management
Solutions, an Irvine, Calif., firm that provides outsourced services for the
business side of hospital work, started thinking about seeking private equity
about a year ago. The company had begun expanding into other regions by opening
a Dallas office. “My phone started to ring at just about the same time with
people who wanted to make capital available to us,” he recalls.
There was a
steady enough stream of interest that Halberda felt comfortable declining if the
fit was not right, and he enjoyed the luxury of being pursued. Talking to all
those firms provided a good reference point, he says. “I’ve never had to
evaluate potential partners or financing structures. I learned a great deal by
engaging in all those conversations and seeing the firms’ different approaches
and their mannerisms.”
When Riordan, Lewis & Haden came along, it seemed
like a good fit, but Halberda still vetted the firm as thoroughly as they vetted
him and his company. “We went through the whole chronology of transactions
they’d done over the history of the firm,” he says. “And we asked for access to
former CEOs and current CEOs, so we could have a real appreciation for the kind
of people they’d worked with.”
If anything seems amiss at any point before
the deal closes, a business owner who has had several good offers can walk away,
confident that he will find a viable alternative. Doug Bradshaw, chairman of
Bradshaw International, a kitchenware company in Rancho Cucamonga, Calif., did
just that.
His management team, which includes two generations of Bradshaws
and a hired CEO, saw the kitchenware business consolidating a few years ago, and
they decided that their company, which had double-digit growth on its own, was
healthy enough to be on the buying side of some of those deals. It began looking
for a private equity partner in 2000 to finance acquisitions. It nearly settled
on a firm, one of several in a close contest. But “the firm started to weasel on
the evaluation at the end,” Bradshaw recalls. “We figured if they were going to
nickel and dime us, say one thing then change their minds later, we probably
didn’t want to be in business with them.”
|
|
|
|
|
|
|
