Managing Partner, Montage Partners.
When economists start sounding the recession alarm—or even just tell us to prepare for an economic down cycle—most business owners don’t view that as a green light to sell their company or take on a growth investor. Many business owners push the timeline on these plans or shut down a transaction process already in the works, believing that continuing would result in a worse outcome for their proceeds or prove too great a distraction for their company. In reality, a down cycle could be an ideal time to sell your company or receive growth capital, securing the company’s future growth without leaving money on the table.
I’ve worked in private equity for over 20 years and have seen firsthand how economic alarms can provide a sense of fear or doubt in business owners and their advisors, even if they had already established the time was otherwise right for them to sell or partner with an investor. The alternative, nonmedia perspective on this topic is important to highlight so that business owners don’t miss out on growth simply because the news cycle is stirring up anxiety around the economy.
Prioritizing growth in a recession can catapult you past the competition.
In my experience, many business owners entering an economic recession think “it’s time to hunker down and focus on getting through this downturn.” Key investments in the future may be delayed because they keep hearing it’s a “terrible time.” Taking a counter approach to what everyone else is doing is how the best companies typically position themselves, and investing in growth during a downturn is no exception.
Having a sounding board can provide confidence.
When challenging times hit, it can feel very isolating for a business owner. Employees, customers and suppliers rely on you to provide continuity and security, and it’s easy to second-guess your decisions. With a supportive capital partner, you can access an experienced sounding board to help navigate challenges.
In a survey of our partner companies during the Covid-19 pandemic, 85% of CEOs said being partnered with a private equity firm helped them feel more secure during the pandemic, while 60% agreed using their private equity partner as an additional trusted source of information was a key benefit of the partnership. This support could be as hands-on or abstract as you would like. A private equity firm can share these experiences to help spark ideas you can implement.
Send a message of strength to your ecosystem.
Unless your company is distressed, and that is the impetus for finding a capital partner, taking on an investor during a downturn signals to suppliers, customers, employees and competitors that your company is stronger than ever and ready to grow. This instills more confidence in your company and can drive even more opportunities.
Maximize your company’s value.
If your company has proven it can grow and succeed during economic downturns, this can prove even more enticing to a potential capital partner. While mediocre companies may be buoyed during an economic boom, great companies will thrive during any economic climate. If you have a great company, it may be worth even more in a downturn than in a strong economy, as buyers will pay a premium for a proven company that can grow even when the economy suffers.
Many investors don’t try to time the cycle.
While there are exceptions (and you should be aware when evaluating offers for your company), the best investors won’t change their mindset during a down cycle. Growth-oriented private equity firms take a long-term perspective on their investments and don’t try to time the economic cycle and decrease valuations during downturns. From this type of investor’s perspective, they are investing through multicycle periods, so they are less concerned about current economic conditions and more focused on whether the company is fundamentally solid and will continue to grow steadily regardless.
The right time is with the right investor.
With the right investor, it’s always the right time to partner, regardless of where we are in the economic cycle. By the “right investor,” I mean one that is investing for the long term, as discussed above. By focusing on finding the right investor, the rest will work out. Determine what factors are important to you in a sale or growth investment—while purchase price is certainly one of these, others should play into your decision—and focus the most energy on ensuring a good two-way fit. If you find this, purchase price is likely already aligned.
Find the right investor for you.
Finding the right partner is easier said than done. Many founders and business owners are concerned about losing control of their company or being micromanaged or seen as only a number. While this can certainly be true of some investors, these concerns can be mitigated by establishing a healthy foundation of trust and mutual understanding before any transaction.
Approach getting to know potential investors as you might a courtship: Spend time together face to face, get to know them personally, and understand what they value and stand for. Do these values align with you and your company’s culture? Always talk to management teams or owners that previously worked with the investor and ask how they lived up to their promises and helped add value to the business. Ensure the investor is getting a deep enough understanding of your business to truly act as a partner—this likely involves talking to multiple parties within your ecosystem, including employees, customers or suppliers. Most importantly, make sure they fully articulate their vision for the company’s future and growth plans so that you can ascertain if it is aligned with your vision.
Selling your business or bringing on a growth capital investor can be transformational, both for you personally and for the company you’ve spent years building. This doesn’t have to be put on hold just because economists and the news are predicting a recession. In fact, you may find that a predicted downturn is exactly the right time to invest in your company’s future growth!
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