Content area

Full Text

 
Headnote

EXECUTIVE SUMMARY

[bullet] The following article outlines five reasons for owners to consider private equity as an exit alternative.

Private equity is an exit alternative that has only been available to engineering and construction companies in recent years. The prolonged economic boom of the late nineties and the unprecedented financial success of many companies in our industry caused private equity investors to gain substantial interest in the engineering and construction industry. As the economy has slowed, many firms in our industry have continued to prosper, which has only furthered the interest of outside investors. Private equity firms make investments in operating companies for three to seven years with capital they raise through institutions, businesses, and wealthy individuals. Private equity can be an excellent interim step for an owner who is not ready to sell his business yet, but may be ready to sell in the next five years. Outlined below are five reasons for owners to consider private equity as an exit alternative.

REASON #1-SUBSTANTIAL LIQUIDITY

Private equity transactions are an excellent way for owners wanting to remain private to obtain significant liquidity at an attractive valuation without having to transact an outright sale. Most private equity firms prefer to purchase over 50% of the equity in a typical transaction. This can generate substantial liquidity for the owners to "take some chips off the table" and diversify their net worth, while maintaining significant ongoing ownership, providing for new ownership opportunities for the next generation and retaining day-to-day operational control.

REASON #2-GROWTH CAPITAL

In addition to providing liquidity for the selling shareholders, private equity firms will provide additional debt and equity capital for internal and external growth opportunities. In many businesses, the management team has excellent growth plans but does not have the capital or is not willing to "bet the farm" to execute a given strategy. This could include opening...

Show less