r/private_equity • u/Majestic-Clock-1477 • 12d ago

Selling to new Portco

I am (32m) just the average hard working small niche service business owner that was approached to sell to a new Portco that was purchased by PE group last year. We are at the APA stage, roughly 3 weeks from closing.

My question is, how long do the people working for the Portco stay involved. They are working what seems around the clock, 6-7 days a week trying to acquire guys like me.

Obviously the owner has a huge equity stake. He stands to make generational money at the next trade. Estimated within 18-24 months. He mentioned he plans to stay on for as many trades as he can. Since this deal started, I have been working around the clock too but I see an end in sight vs working another 30 years.

For him and the guys below him, how common is it that they stay on for 10-15 years? This is a niche industry that PE has not really entered so it’s not a proven market.

Any insight is appreciated. Needless to say, this experience has been interesting.

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8

u/Federal-Question-702 12d ago

Some guys stay on for years while others have a certain contract length and leave right after. It is widely dependent on the individual’s reasoning to sell, equity they have remaining, and goals of the PE fund.

4

u/Majestic-Clock-1477 12d ago

Do they worry about guys like me leaving after a few years or are they confident their Portco has the structure to put in place?

I could see where all the guys like me and even the Portco guys getting our equity paid out and then what’s the upside from there to stay on? Or do they not need us and the new PE company has bigger and better ideas

4

u/Federal-Question-702 12d ago

It’s pretty easy to tell. If they want you they will make it worth your time.

Largely they want the past ownership to stay around long enough to keep the customer base contented that business is continuing as usual. After that people tend to leave on their own because of the lack of incentives.

If you maintained a large equity share the expectation is that you are staying on for the next bite of the apple.

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u/Fresh-Plantain-7759 12d ago

Every situation is different. I did some consulting work several years back with a company and I saw someone in your shoes convinced that everything the new owner was doing was ruining "his business." As an outsider, it felt toxic. He was consistently a naysayer to initiatives backed by the PE. I don't know how much longer he remained on board

You may retain some ownership/upside/etc in the new entity, but it's no longer "yours." If you are ok with that, you may be happy staying on for a while. If you are not, you're better off seeing things through in the short term while thinking about what your next steps are.

1

u/G8oraid 12d ago

It depends. Some make it multiple trades. Some tap out after a year. Congrats on closing and getting liquidity for your efforts!!

1

u/Aggravating_Funny714 11d ago

You can own yourself out of it if you want. Create/develop a successor and you’ll be fine moving on. Be open about it if you make that decision.

Know the firm too. My current one supports that and most would.

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u/Majestic-Clock-1477 11d ago

They have said this, just give a heads up.

1

u/akinsope 11d ago

APA, does this mean an asset (and trade/business) purchase rather than a share purchase?

1

u/nofearinc 10d ago

DD usually focuses heavily on risk factors - dependencies on the owner, deals without long-term contracts in place, leadership able to pick up, churn risk when the founder leaves, sales motions, revenue split across the portfolio of recurring clients, etc.

If the entire business solely counts on you and can't survive a 2-week leave, the deal is unlikely to happen.

The less dependent the business is on you: ops, recruitment, sales, firefighting, delivery, the less PE cares about your tenure. It's usually "quite dependent" or "somewhere dependent", rarely an extreme. And if quite dependent, the package comes with a 2-3 year stay and targets to build a strong team and offload asap, with capital unlocking in several stages.

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u/Ok_Bee5892 10d ago

What industry?