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Preparing for exit: Attracting private equity interest

August 16, 2015 Article 1 min read
John O'Connor

Considering a sale to a private equity firm? The following are a few key characteristics PEGs look for before investing in a technology company:

A differentiated product or service.

Do your products or services solve a customer’s problem or address a need? Brilliant technologies only go as far as customers are willing to pay.

Niche market leaders.

While a middle-market company is not likely to be a global leader in a particular industry, it can be a leader in its specific market or subsector. Investors look for a proven record of growth and profitability.

High industry growth.

PE investors look for long-term viability, not what might be trending at the moment. Solid brand recognition, long-term viability, and a unique model will keep one’s strategy from becoming a falling star.

A well-defined expansion strategy.

Strategy is king. Whether it’s geographic expansion or entering new markets, a solid plan for future success is vital in attracting investors. Potential investors seek opportunities that are well positioned for future growth and have a specific strategy to capitalize on future opportunities.

Blue chip customer base.

Investors don’t want to worry about fickle customers, or a fickle market. A company with a blue chip customer base is seen as a less volatile investment opportunity because those customers are likely to stay, regardless of market conditions or changes in the economy.

Recurring or sticky revenue streams.

Many technology companies don’t have a backlog in the traditional sense, but demonstrating viability of revenue is important, for example, software as a service (SaaS) where software is licensed on a subscription basis and is offered via the cloud. This model allows for continuous revenue streams.

Proven management team.

Private equity investors look for organizational stability and proven success. Maintaining the management team post-transaction may be a deciding factor. Often times this means selling well ahead of retirement (3-5 years).

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