Downturn in Private Equity: Should business owners be worried?

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Hey ,

Two recent stories out of the Financial Times have just come out talking about how private equity funds are struggling to offload their portfolios and finding it difficult to raise more cash.

They’re talking about how fundraising for buyout funds are at their lowest for four years, and the big boys are increasingly relying on dubious tactics like having one of the own funds buy a portfolio company from another of their own funds and marking up the valuation.

It begs the question, without private equity, who’s got the cash to buy your business and let you retire?

Let’s see if this is something to be genuinely worried about or is it media hype?

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I have several issues with these articles even if they raise some good points. If you’d like to read them on your own, here they are (may be behind FT’s paywall, this article will summarize them anyway)

Firstly like the rest of business, acquisitions happen in cycles, so don’t expect there to always be a hoard of cash sloshing around waiting to be given to you.

And remember these three things before rushing to conclusions:

1. These companies still have cash dry powder from before, this is future capital not past

2. Deals are still being done no matter what the overall market is like

3. Most of these transactions aren’t in the SME space, so this downturn doesn’t apply to most of our businesses

You should aim for your business to be antifragile which means you’ll continue to succeed despite outside conditions, including for raising investment.

How to prepare for this:

Keep personal relationships with potential buyers. Even if they’re reluctant to invest now, if you have built good rapport they will remember you when they are ready

Cement your uniqueness. A truly special business is always valuable

Always be prepared: When deals are scarce, good sale preparation means you can act quickly when an opportunity does come

With these in mind, please leave us a reply telling us how you are preparing for any market scenario.

Here’s to your success!

Unlocking Wealth Weekly