Using Private Equity to Fund a Merger and Acquisition Strategy

When it comes to scaling your business, a variety of strategies can be used. Many people think of scaling strictly in terms of growing their existing operations; however, merger and acquisition strategy (M&A) is a common process companies will leverage to expand their existing business.

Sometimes referred to as a buy and build strategy, M&A involves purchasing one or more companies, allowing you to become more competitive and capture a greater share of the market. If an M&A strategy is something that you are considering for your business, the next question will be how to fund such a strategy. One option is to seek outside capital, namely through private equity.

In this article, we will discuss what you need to know about using private equity to fund an M&A strategy.

How to select the right private equity partner:

Private equity is a method of business funding that involves exchanging an equity share in your company for capital. Your company can then use these funds to advance its M&A strategy.

However, before you choose an equity partner, it is important to do your due diligence to ensure that there is a good match. For example, you will want to ensure that your interests are aligned with that of your new private equity partner in terms of the timeline for the M&A strategy to be executed. If your new equity partner is looking for a fast turnaround while you believe it is better to be patient, then there is the potential for conflict.

You will also want to ensure that your views are aligned as to who the potential acquisition targets are. You may need to reach an agreement that balances long-term growth with short-term value.

If you choose to work with a majority investor, they may want a greater say in how the company is run and possibly even want to change the management structure. A minority partner, on the other hand, will not be in a controlling position, and will let you run the company as you see fit and be there to provide insight and guidance as necessary.

Is private equity the right choice for your company’s merger and acquisition strategy?

There are several factors that will play a role in helping you decide if private equity is right for you. These include:

  • Investor profile – It’s important to research any investment firm before you partner with them. Firms that have experience investing in your sector are more likely to be able to provide you with valuable advice on your M&A strategy to help you be successful. And as mentioned, it is important to ensure that their values align with your own.
  • Deal type – The type of deals you are looking to incorporate into your M&A strategy can also help you determine if private equity is the right choice. A horizontal merger (between companies of a similar level on the value chain) is generally simpler than a vertical merger which involves companies at different levels of the value chain.
  • Your attitude toward debt – Private equity can be a good option for those that are adverse to debt. On the other hand, for private equity to work, you also need to be comfortable giving away a portion of ownership in your business.

Contact CBGF today

If you are interested in exploring bringing on a minority partner for your M&A strategy, we would love to hear from you. Contact us today to discuss whether a partnership with CBGF would be the right fit for your Canadian business.