Having Your Cake and Eating It Too: Selling Control to a Private Equity Group

By Andy Stockett

Let’s say you’ve grown your company to $10 million in revenue with adjusted cash flow (or EBITDA - Earnings before Interest Taxes Depreciation and Amortization) of $ 1.5 million.

Going to the “next level” requires additional debt (i.e. a loan from your bank with your personal guaranty on it). Competition in your industry is fierce and to stand still is to die a slow death. So, the question becomes whether you should push all your chips back onto the table with additional debt or pursue the alternative of “partnering” with a Private Equity Group (PEG)?

First, what is a Private Equity Group? PEGs assemble a pool of funds from a variety of sources – college endowments, pension funds, wealthy individuals, etc. – to make investments in privately held companies. Their number one condition in determining whether to invest in a company is consistent and stable revenue growth. A close second is an EBITDA margin of over 10%, followed by an experienced management team that is committed to the company and willing to invest with the PEG in moving the company forward.

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