Electrifying Growth Episode 54: Preparing for a Transaction

When working closely with founders, one recurring question always seems to come up: How do I prepare to sell my business or partner with a private equity (PE) firm? It’s a topic that’s become more relevant than ever, especially as businesses face a more challenging market with rising costs and tighter capital.

Whether you're running a software company or a more traditional business, the fundamentals of preparing for a transaction, raising capital, or finding a partner haven’t changed. But in today’s environment, there are nuances that are crucial to understand, especially when it comes to the relationship with private equity firms and the role of investment bankers in the process.

Don't Wait to Start the Conversation: Build Relationships Early

Many founders think that the process of preparing for a transaction only begins when they hire an investment banker. But I believe the real work starts much earlier. Before you even consider bringing a banker into the process, take the time to establish a relationship with a PE firm.

At Edison Partners, we’ve always valued relationship-building as one of the key pillars of our approach. Unlike firms that may only work with businesses that are actively seeking a transaction, we’re happy to engage with founders even when they’re years away from selling. This approach allows us to understand your business, your goals, and your challenges. The more time we spend with you, the better we can gauge the true value of your company and where we can add the most value.

The sooner you start the process, the sooner you have access to the Edison Edge, exclusive event invitations, and a chance to see what scaling looks like from the inside. Relationship building isn’t just about securing a deal; it’s about building trust and a long-term partnership.

The Investment Banker's Role: What You Need to Know

Now, this isn’t to say that investment bankers don’t play a role in the process. They do, but it’s important to understand what they bring to the table and their motivations. In my experience, investment bankers often focus on getting you excited about their potential value by inflating your company’s worth. I’ve heard it said that bankers “white lie” to win your business. After all, if they tell you that your company’s worth less than you expect, why would you hire them?

So, what’s the solution? My advice is to gather some feedback from PE firms before you hire an investment banker. You’ll get a sense of what the market thinks your business is worth and whether you’re ready for a transaction. 

This early feedback also helps you better understand the deal dynamics. There’s no need to get stuck in the traditional cycle of speaking with dozens of firms and gathering multiple offers. Often, it only takes one partner: the right partner. If you’ve spent time building the relationship, you’ll have a better idea of whether that firm is the right fit for you and your business.

Accessing the CEO: Why It Matters

Another critical point is the level of access you provide to PE firms. In many deals, bankers restrict access to the management team until later in the process, which means the firm’s only insight comes from a brief PowerPoint presentation and the banker’s interpretation of your business. At Edison Partners, we do things differently. We prioritize access to the CEO and the founder early on. We want to understand your motivations, your leadership style, and your vision for the future.

We believe that understanding you, beyond the numbers and documents, is crucial for building a successful partnership. It’s not just about the valuation; it’s about the chemistry and trust between the founder and the firm. This access helps us better assess the scalability of your business and determine how we can work together to reach your goals.

Growth or Profitability: What's Your Focus?

As you prepare for a potential transaction, one of the first things you need to ask yourself is whether your business is positioned for growth or profitability. There’s a big difference between the two, and understanding this difference is key to attracting the right investor.

If your business is in a high-growth phase and you’re focused on scaling, PE firms that specialize in growth equity may be the right fit. On the other hand, if you’re more focused on profitability and efficiency, there are buyout firms that may be better suited to help you maximize value through operational improvements.

It’s essential to understand where your business stands and what you want it to become. Whether you’re looking to scale further or optimize existing operations, positioning yourself correctly will help you find the right partner.

The Commercial Reality Post-Transaction

When the deal is done, the real work begins. This is where the true value of a PE partnership comes into play. For PE firms like Edison, the goal is always to help businesses grow and scale, but it’s also a commercial endeavor—we are working for the returns of our limited partners. This means that post-transaction, decisions are made with a clear focus on return on investment.

However, this doesn’t mean sacrificing people or culture. Growth doesn’t always mean cutting costs or pushing for short-term gains. Growth can, and should, be balanced with the long-term health of the business and its employees.

It's About Building Trust, Not Just Closing a Deal

Preparing for a transaction is a long process, and it’s not something that happens overnight. But if you invest time early on to build relationships with PE firms, understand the role of bankers, and clearly define your business’s goals, you’ll be better positioned to make informed decisions and secure the best possible outcome.

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