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New Jersey Business Brokers: Article About Private Equity Business Buyout

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Private equity firms are groups of individuals with cash to invest in business enterprises. That investment may take the form of a leveraged buyout (LBO) in which the equity firm purchases your business. It could also involve an investment that helps you develop your business or pay off debts. The private equity firm gains control over your enterprise with these investments. Ask your New Jersey business brokers about the implications of selling all or part of your company to a private equity firm.

Potentially, an equity group that purchases your business may resell it for a quick profit. If that happens, your employees and your business legacy are unlikely to survive intact. On the plus side, selling your company as a package to a well-funded buyer is a way to make a smooth transition. The buyers may even stick around to help your enterprise grow.

However, only a handful of businesses qualify to join the portfolio of large private equity firms. According to John Warrillow's article, "Making Private Equity's Short List," in Inc. magazine, of the over 4,000 businesses approached by Riverside Company in 2009, the private equity giant wound up actually purchasing only 15.

Qualities that typically attract these investment groups include a diversified customer base, at least three years of turning a profit, growth opportunities and an EBITDA margin of more than 10 percent. Investors also are looking for businesses that lead their niche markets with defensible positions.

The business brokers from Selby Associates of New Jersey would be happy to answer any question you have about business advisory services or business mergers.

In many cases, a private equity group approaches businesses that meet these criteria but may not be currently for sale. If this happens to you, it may make you realize that you are ready to make a change. Perhaps you want more time for other pursuits or would like to retire altogether. While complete business transfers are not unheard of, a recapitalization agreement, in which the owner retains a small stake in the company, is more common. This ensures that daily operations continue as usual despite a change of majority ownership.

This situation allows you to gradually exit your role in the company while retaining your staff and preserving your business. As the end of your tenure nears, the majority owners will have a made plans to further develop the enterprise and perhaps even increase the value of your remaining company share.

In situations where you need to sell your business quickly due to health or personal issues, finding a merger and acquisitions broker who works with private equity firms is a smart strategy. If your company has the right qualifications, some private equity groups are equipped to move quickly in evaluating and acquiring your business assets, often within a few months. This helps prevent ongoing devaluation of your company in your absence.

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