April 29, 2019

Private Equity: Navigating the Challenge of Buying a Family Business

Family businesses are unique in many ways – and the process by which they find a buyer is often one of them. This DLA Piper memo has some tips for private equity sponsors on how to successfully navigate the challenges associated with buying a family business. Here’s an excerpt that says not to show up at the business looking like a bunch of private equity “deal jocks”:

One business owner told us, “They came here straight from the airport in suits and black cars. My employees thought the FBI was coming to take me in.” That business owner was able to laugh about the behavior of the private equity sponsors who were courting him, but those discussions failed to launch.

Every business has a culture or ethos that drives behavior, including dress, mannerisms and manifestations of respect. After spending time with a team at the management presentation, it is important that the sponsor’s deal team try to follow the company’s leadership in terms of style and dress.

Moreover, it is easy to forget that, as exciting as the deal may be for everyone, the business owner will still want to keep these discussions confidential from most people. Dressing and behaving in an inappropriate, high-profile way may alarm the company’s long-term employees, family members, and, of course, material customers and suppliers, who may be unaware that a founder or family-business owner is preparing to leave the business. Avoid the need to do damage control (and to force the owner to do damage control) and help the business owner stay focused on your offer by being thoughtful in how you present yourself.

Other tips include things like the need to identify the real decision maker – titles sometimes don’t matter much in a family business – and the need to be willing to invest more time in the deal process than you might in other settings.

John Jenkins