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How to Set the Stage for Successful Private Equity Investment

The record-breaking surge of dealmaking and private equity we saw in 2020 and 2021 has slowed. Over the second half of 2022 and into the early months of 2023 inflation and rising interest rates have created economic uncertainty, making it more difficult for mid-market businesses to attract funding. That’s not to say funding isn’t available, however. At this point, the long-term outlook for private equity investment remains favorable. There is still private capital available for quality companies that can demonstrate consistent growth and increasing value over time.

The key to securing that funding is preparation. Investors want to see thorough, detailed financial reports, strong leadership, and solid projections. They want to know that the investment will generate robust returns and that the company has excellent long-term growth potential. 

The good news is that there are clear steps companies can take to increase their chances of securing private equity funding. How do you do it? The answers are in the details.

What Investors Want to See

PE firms are looking for quality companies with high potential for return on investment. To attract their interest, you’ll need to spend time in vigorous preparation that accomplishes two goals: mitigate risk and demonstrate readiness. You can increase your chances of attaining the funding you need by getting all of your financial and operational details in order.

• Demonstrate Strategic Value – One of the most important considerations for private equity investors is whether or not your company has long-term potential for growth and profitability. You will need to demonstrate value in terms of market position, competitive advantage, and strategic planning. In addition, your company must be scalable across all functions and operations including marketing, supply chain, sales, operations, talent management, and customer acquisition.
• Have an Experienced Leadership Team – Does your company have a strong leadership team that can provide vision and strategy both now and in the future? This includes experienced CEO and CFO leadership as well as capable managers that can execute strategy efficiently. Your team should also include the right mix of skills to manage daily operations, serve customers, and generate profit. Private equity investors will want to meet with leaders and ensure that both the CEO and the CFO have the skills needed to take the company to the next level. Be sure you can clearly articulate your vision for growth and that leaders have the experience needed to execute that vision.
• Conduct Thorough Financial Due Diligence – High caliber financial data, transparency and accuracy in the finance function, and clear, detailed reports form the basis for investment valuation. Often, companies seeking their first round of funding don’t have the capacity to produce the volume of data investors need. Achieving that depth of detail and analysis often means updating systems and implementing new processes, including:
  • GAAP Compliance – Compliance with GAAP, or Generally Accepted Accounting Principles, is the standard for financial statements. GAAP ensures transparency and makes it easy to compare financial information with accuracy. Most investors will not consider a company that fails to comply with GAAP requirements. If you do not currently follow GAAP standards, you will need to implement them before pursuing a private equity deal.
  • Cash Flow – Business performance starts and ends with cash flow. Investors want to see detailed cash flow analysis and projections to ensure that you have ample cash to cover expenses and unexpected contingencies.
  • Financial Statements – PE firms will ask for at least three years of audited financial statements, including balance sheets, income statements, and sales and revenue growth statements. Work with a reputable CPA or audit firm to verify financial performance and accuracy.
  • Reporting – Investors also want clear, detailed financial reports that show consistent growth and profit. These may include month-end close reports, forecasts and projections, sales reports, and KPIs.

• Update Technology – To create the financial and operational visibility investors are looking for, you will need a technology infrastructure that generates quality, accurate data quickly and helps you make better decisions. For many founders, that means investing in more sophisticated systems to handle increased complexity, scalability and visibility. In addition, consider integrating tech tools that will help you automate and standardize your processes. This might include upgrading your ERP, business intelligence dashboards, reporting and monitoring tools, and fintech solutions.

Getting the Support You Need to Close the Deal

As markets continue to fluctuate, private equity investors have become even more scrupulous about the deals they make. They expect clear, quality reports and good data that demonstrates consistent growth and profitability over time. They also want to know that your company is scalable and that it has reliable cash flow that can withstand potential market fluctuations.

The key to meeting these expectations is to have the right team, technology, and strategy to keep you moving in the right direction. That’s not always a given, however, especially when you are seeking your first round of funding as a founder-led company. You may need additional support in areas like:

• CFO leadership
• Accounting operations
• Strategic planning
• Technology transformation
• Reporting and monitoring 
• Cash flow analysis
• Data analytics
• Process automation and standardization

If you don’t have the internal resources on your team to meet the increased expectations of private equity investors, consider partnering with an external provider. Getting support from someone outside your organization allows you to tap into the specific domain expertise you need, increase your team’s bandwidth, and work with a team that has experience navigating and closing deals. 

Investors may be more cautious about the deals they make in today’s economy, but that doesn’t mean funding isn’t available. With careful preparation and due diligence, you can increase your chances of finding the right investment partner and getting the deal done.

Are you ready to pursue private equity funding? At Atlantix Partners, we get private equity. We help mid-market companies solve the basic blocking and tackling issues that may prevent them from securing funding and reaching their goals. Contact us today to learn more!