The formulas, tricks and trade secrets of Private Equity

Middle Market Private Equity Life

Sample Chapter

A Middle Market Private Equity pro has more than one role. Actually, the typical Middle Market Private Equity pro has many roles and they differ considerably. What I find is that although I’m theoretically working many roles each day, for weeks at a time one particular role receives focus. Rather than just writing about one role though, I’ll list the myriad roles that I have to consider on a weekly basis:

  1. Fund raising: a fund is not a fund unless it has investors, so the first stage to getting a fund off the ground is selling the merits of the fund to investors and raising money.
  2. Deal origination: this involves finding potential investees and conducting the initial analysis needed to know whether the deal is worth progressing.
  3. Due diligence: when a deal progresses beyond the early origination stages, much more in-depth analysis in conducted to confirm the investment hypotheses.
  4. Transaction structuring: as a deal becomes more likely, it is important to collaborate with the business owners to understand the best structure to facilitate the purchase or investment.
  5. Settlement: as a deal settles, a lot of work is required to sign documents, implement contracts, transfer assets, advertise the deal, and most importantly, execute the day 1 strategy.
  6. Investee management: at this point, you implement the quick-win strategies and show the management team what level of effort you expect. After the first six months, involvement may taper if all is going well, but there will still be bursts of effort required. These bursts may relate to new acquisitions, poor performance, new strategies, or anything until the investment is exited.
  7. Debt management: in deals with debt, a surprisingly large amount of time is spent dealing with banks. This is especially true of the initial application and covenant reporting.
  8. Exit: the exit process is often quite different to the purchase process because it is a time when you welcome investment bankers into your firm with open arms. You may first contact potential trade buyers directly, but either way, you want to focus on securing the best sale price.
  9. Investor management: the investors in the fund need loving too. After all, you’re having fun with their money. You should keep in touch with them regularly to spread the love, but you may also have to deal with them if any capital call defaults arise.
  10. Regulation: the dirty part of private equity is dealing with tax, accounting, legals, etc. related to the fund, the firm and the stakeholders. However, it’s essential… and essentially boring.

The most diverse role within Middle Market Private Equity would have to be investee management. This is because you must help with any number of roles within the investee. For example, human resources, accounts, strategy, operations, insurance, marketing, computing, management, etc. If you’ve ever wondered why Middle Market Private Equity firms are full of people with non-finance backgrounds, it’s because investees benefit greatly from having access to a wide set of skills in the private equity firm.

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