Private Equity for Middle Market Firms, Long Island, NY - by MSEK Corporate Attorney, James Garbus

by Meyer, Suozzi, English & Klein, P.C.
Contact

TOOLBOX: PRIVATE EQUITY FOR MIDDLE-MARKET FIRMS

March 14, 2012

Publication Source: LIBN

Written By: MSEK Corporate Attorney, James Garbus

“Private equity,” frequently in the news because of presidential politics, has an ominous, even foreboding connotation for many who do not live in the world of mergers and acquisitions or finance. It connotes the book and movie “Barbarians at the Gate,” which tell the story of the infamous 1988 hostile takeover of publicly-held RJR Nabiscoby KKR, the private equity firm formerly known as Kohlberg Kravis Roberts.

Yet “Barbarians,” with its high-profile, rarified players battling a hostile takeover, is not the world of private equity in which most of us are active. We work in a world not of multibillion-dollar companies like RJR Nabisco but of middle-market companies that generate revenues of $5 million to $1 billion.

Long Island middle-market business owners ought to know more about private equity. It can be an effective alternative to traditional options when seeking ways of expanding a successful business, turning around troubled operations, or simply exiting the business or retiring. Shedding light on private equity for business owners is the subject of a March 22 panel discussion sponsored by ACG New York, an association of deal-making professionals, in Farmingdale.

What is private equity? Private equity transactions are investments – made typically by private equity firms (also known as financial sponsors) in the equity securities of operating companies that are not publicly traded on a stock exchange. These investment managers use pools of capital raised from investors, also known as limited partners.

What should business owners know about private equity firms? Like people, all financial sponsors are not the same. Typically, these financial buyers need to retain existing management as a resource to transition the seller’s business to their ownership. Some private equity firms look to partner with existing management and create a team approach for the life of their investment. Others will look to replace management shortly after the acquisition. Business owners are advised to investigate each private equity firm to determine its objectives and operating style.

Private equity firms are financial buyers that make investments to earn a return. The plan typically is to exit the investment within three to five years. If the seller retains an interest in the company after acquisition (a “co-investment”), the seller has the opportunity to make money a second time when the private equity firm makes its exit.

What is the role of special counsel in these situations? Often overlooked in these transactions is the need for special legal counsel to the business that is being sold. The dynamics of the transactions require nurturing by experienced professionals – advisers who have ideally worked on both the buy and sell sides – who understand the pitfalls and nuances of the deal (including the seller’s emotional attachment to the business). Sale transactions are not easy for the owners and operators of middle-market companies, not only because they are not in the business of doing mergers and acquisitions, but also because typically the enterprise has not been run with an exit in mind. The owners therefore need to be guided through the entire sale process, from the financial adviser’s initial due diligence of the target getting the deal consummated.

Because these acquisitions frequently contemplate that existing management continue with the operation of the business for at least a year or two if not until the private equity firm is able to make its exit, the transaction’s advisers on both sides of the table, especially the seller’s side, must help to keep the relationship positive between the selling company’s executives and the financial sponsor so that after the deal is consummated, the seller who continues with the company starts off on the right foot rather than one that begins with distrust and animosity.

With real understanding of how private equity works and with good advice from skilled advisers, these transactions can be of great benefit to middle-market businesses.

Garbus is co-chair of the corporate and corporate finance practices at the Garden City-based law firm of Meyer, Suozzi, English & Klein.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Meyer, Suozzi, English & Klein, P.C. | Attorney Advertising

Written by:

Meyer, Suozzi, English & Klein, P.C.
Contact
more
less

Meyer, Suozzi, English & Klein, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.