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Do What the Pros Do - 3 Strategies Agency Owners Can Borrow from Private Equity

Updated: Oct 3, 2023

Headline: Do What the Pros Do - 3 Strategies Agency Owners Can Borrow from Private Equity

If you are an agency owner who is thinking about selling your business someday, you might want to take some cues from the experts in the field of buying and selling companies: Private Equity (PE) firms.

PE firms are professional investors who acquire, transform/grow, and exit businesses with the goal of maximizing returns for the limited partner (LP) investors, and the firm itself. They have significant experience and know-how when it comes to maximizing the value of their portfolio companies and executing successful exits. They are the “Pros” at creating and maximizing value.

Here are three things that home-based agency owners can learn from PE firms on how to achieve a successful exit:

1. Plan your exit early

One of the key principles of PE exit excellence is to keep a clear and consistent view of why your business is a great asset, how it will improve, and why it will be attractive to potential buyers.

PE firms plan their exit strategy before they even close on purchasing a platform company, or as soon as possible after acquiring it. They identify the most likely buyers, the key value drivers, and the optimal timing for the exit. They also align their business strategy and performance improvement initiatives with their exit objectives. As one PE executive reminded us at a recent conference, “We make our money when we sell, not when we buy." In fact, PE will often “overpay” for the initial platform acquisition, just to get a foothold in the industry.

As an agency owner, you should also have a clear vision of your exit goals and how to achieve them. You should know who your target buyers are, what they are looking for, and how you can differentiate your business from the competition. You should also have a realistic valuation of your business and a plan to increase it over time.

An exit plan doesn’t need to be elaborate to be effective. Having an early idea of your “magic number”, your target buyer/investor category (usually a strategic buyer or private equity firm), and an ideal exit date is a great start. Keep in mind your exit plan is a living document. It will evolve, along with you and your business. We suggest taking a few minutes each quarter to review, modify, and expand on it as appropriate.

2. Be big on KPIs

PE firms are obsessed with measuring and improving the performance of their portfolio companies. They use Key Performance Indicators (KPIs) to track progress, identify issues, and drive actions. They also use KPIs to communicate the value proposition and growth potential of their businesses to potential buyers.

As an agency owner, you should also use KPIs to monitor and improve your business performance. You should focus on the metrics that align with your values, such as quality of care, revenue growth, gross and net profit margins, client satisfaction, employee retention, and market share. You should also use KPIs to showcase your agency’s achievements and demonstrate your future potential.

3. Run a banker-led competitive auction process when you sell

This sounds self-serving, and it is, but it’s also true. PE firms typically hire investment bankers to run a competitive auction process when they sell their portfolio companies. This involves creating and sharing the appropriate marketing materials with the most qualified buyers at the right times, soliciting bids, negotiating terms, and closing the deal.

A competitive auction process helps PE firms achieve the highest possible price for their businesses, as well as favorable deal terms and conditions. It also creates a sense of urgency and scarcity among buyers, which can motivate them to act quickly and decisively.

As an agency owner, you should also consider hiring a professional advisor to run a competitive auction process when you sell your business. A professional advisor can help you prepare your business for sale, market it effectively, attract multiple offers, negotiate the best deal, and navigate the due diligence and closing process.

Selling your home-based care agency can be one of the most important decisions of your life. It can also be one of the most rewarding if you do it right. By following the best practices of PE firms, the “Pros,” you can increase your chances of achieving a successful exit that meets or even exceeds your expectations.

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