Raman Sehgal founded life science agency ramarketing. He recently authored a #1 best-selling book and hosts the Molecule to Market podcast.
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Recently, my specialist life science agency received a private equity investment. It was a far cry from the side project I started at a dingy dining table in my home in Gateshead, England, back in 2009.
Over the last few weeks, as the euphoria has calmed and the dust has settled following the deal, I’ve reflected on what people have been asking me. It seems that senior agency leaders are keen to learn: What goes on behind the scenes of a PE deal? And what should you think about if you’re contemplating the process yourself?
I plan to write a book covering everything involved in detail, but in the meantime, here are some headline thoughts on how to prepare, what to expect, and stuff that I got wrong and would do differently next time.
Get Your House In Order
If you’re planning anything like this (investment, acquisition, management buyout, employee share scheme, etc.), give yourself a good two-to-three-year runway.
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In addition to having consistently strong trading and growth for a number of years (which is not as easy as it sounds), your legals, financials, banking, taxes, commercials, net promoter score, and environmental, social, and governance metrics better be gold-plated. Why? Because the smart management consultants and finance folks on the other end of meetings and Zoom calls later in the process are paid to poke holes, delve into the details and stress test everything about your organization. If you’re a well-established business with a strong management team and your data is in order, 12 to 18 months is doable depending on the complexity of your business.
Prepare, Prepare And Prepare Some More
Quite honestly, due diligence will always be much worse than you think. So be prepared.
Be prepared for questions. Then more questions. Then questions about the questions. Search online for due diligence preparedness checklists from the Big Four accounting firms. I looked at one of these at the start and (foolishly) dismissed it, thinking “they will never ask for all that stuff.” Then came one of the Big Four. They asked the whole lot, and then some. And good for them—that’s what their client is paying for.
Assuming you’re a business that’s making decent money, get ahead of all this with some vendor due diligence by a reputable accounting firm—not to be confused with the vendor assist that I chose (just a basic audit of financial performance). The money we saved on the latter was not a wise choice. Vendor due diligence would have cost more at the start but saved us so much time and effort during due diligence.
Pick Your Advisors Wisely
I’ve seen several deals go south when the entrepreneur used their friend who is a property lawyer to represent them on a merger and acquisition deal. You will not do many deals like this in your life, so get the best advisors you can, such as an investment banker who really knows your market, your business and the potential suitors. Their job is to get the best deal. A lawyer who has your back (personally and professionally) can guide you through all of the confusing jargon but also make sure that you are making smart decisions with all risks considered.
Taxes and accounting are also key components, so get people you trust who know this type of transaction. As with anything in business, pick people you are comfortable with and who feel like your type of people. You are going to interact with these people a lot in early meetings, calls when commuting and late-night texts. So explore a few options and choose wisely before locking in your A-team.
Tell A Good Story—And Listen
The thing I loved about the whole process (yes, there is something to love) is that a big part of it is storytelling. It’s like writing a book or a script that you want your audience to fall in love with. There’s the backstory, the market, your business model, the team, your clients, the management and, of course, the potential.
Once you get into the flow of meeting potential suitors, you’ll start to learn what is really appealing. And take note of all the questions you are asked and listen to any reservations, ideas and thoughts they bring to the table. All of this knowledge enables you to refine as you go, so you get better and better. I wish I’d spoken less at some of these meetings because the questions people asked are gold dust in terms of unlocking what is truly important to them.
Lean Into Learning
Despite the long hours, endless meetings, late nights, secrecy and stress of the entire process, it was one of the most enjoyable things I’ve ever done.
I can honestly say I learned as much about business over the 18-month process as I have in the last 18 years. Don’t get me wrong—it’s a steep learning curve, but I feel so much more rounded as a businessperson now. And the same is true for my team.
I knew nothing about PE before I started the process, so I subscribed to every podcast, listened to every audiobook, indulged in blogs and digested every book on the subject. This is not something you want to wander into as an amateur; you’ll be eaten alive.
In addition to the self-education aspect, you’ll learn endlessly throughout the process about things like positioning; compound annual growth rates; trailing earnings before interest, taxes, depreciation and amortization; letters of intent; value drivers; negotiation tactics; and sales and purchase agreements. It’s never-ending.
Honestly, agreeing to the deal is just the beginning.
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Author: Raman Sehgal, Forbes Councils Member
