Gridiron Capital Managing Director Joe Saldutti says, as a private equity investor, what attracts him to businesses and helps him prioritize investing in one company versus another is when it's a great business with great people and a winning culture. But equally as important is being the right partner for that business.
"There are a lot of great businesses that we might not be the best partner, we might not be able to help grow with our expertise that specific business," Saldutti says. "And it stuns me sometimes that businesses that are looking to sell, they put themselves in these processes that are very short. They get to meet the buyers for one afternoon or a dinner, and they don't really do too much diligence. They've spent their whole lives building their business, they're very proud of it, and then they do very little diligence."
He says he encourages those who are thinking about selling their business to start doing diligence now by exploring the buyer ecosystem and those relationships.
"The owners should do a lot of diligence on folks like us," he says. "They should talk to every CEO that we've ever helped because it's their legacy that they're entrusting in someone else's hands."
When preparing for a transaction, Saldutti says there are essentially two prominent components to consider.
"The first and foremost is to build a great, sustainable business. And that's what we try to support our leadership teams to do, as well," he says. "We're not trying to sell a business that's then immediately going to fall off. We're trying to be thoughtful about the strategy. We're trying to be thoughtful about the projections of the business. We're trying to make sure that the business is resourced."
To do that, he says, requires setting it up to be successful three to 10 years down the road.
"All those building blocks — the people, the plan, the strategy — that's what really builds long-term value in the business," he says.
The other side if deal preparation. He says he's talked with founders over the course of years who think they're ready for a meeting with a private equity buyer and then not have something like GAAP accounting or have never been audited.
"Things like that which are value enhancing, don't wait till the last moment because if you have a great business, also, the house should be in order — succession planning, do an audit, look at all your contracts, try to build businesses along the way that don't have significant customer concentration, significant supplier concentration, all those things that make for a great long-term business that also the house is kind of in order," he says.
Founders, he says, should be introspective ahead of a deal and really know what they want to do once they sell the business. Terms can be created based on that decision. But what he doesn't want is owners who change their minds during a process.
"So, for example, do you want to be a 40 percent continuing shareholder? Or do you want to sell all your shares and go play golf? Thinking through those things in real time enables folks like us to really plan for that because frankly, we would be happy to do either," Saldutti says. "Obviously, we'd love to have partners reinvest with us and rollover, and we'll always require that of the leadership teams that present us the projections. But to get changing thoughts while we're in discussions is very disconcerting. I just urge people to be thoughtful about what matters to them, what they're truly willing to do, and then you can just have honest and open discussions regardless of what that is, and you'll find that the right partners are happy to accommodate that. We just don't like surprises or change of thoughts at the very end."