What does selling my business to private equity mean for me?

A private equity buyer is not the same as an individual who wants to run your business. It is an investment firm, and BDC says its goal is typically to improve a company’s value and eventually sell it. So beyond price, ask about your role afterward, how much you are paid at closing, and how the firm will finance the deal. This page explains what BDC and the Competition Bureau say, so you know what to ask.

What the buyer is

BDC defines private equity as a form of investment where funds are invested directly into private companies, or where private equity firms acquire public companies to take them private. It says the goal of private equity investors is typically to acquire significant control or ownership in a company, improve its value, and eventually sell it at a profit, often through an exit strategy like a sale, merger or public offering. BDC adds that private equity firms typically invest in more mature, established companies than venture capital does. The Canadian Venture Capital and Private Equity Association’s site includes a map of private equity and venture capital activity across Canada.

Borrowed money in the deal

BDC gives leveraged buyouts as one form of private equity investment. In a leveraged buyout, the company is purchased with a combination of equity and borrowed funds. If the buyer uses debt, ask how much of the price is paid at closing and how much is deferred. BDC also describes a leveraged buyout as an acquisition made primarily with borrowed funds, with the acquired company’s assets often serving as collateral for the loans. Ask what the company will owe afterward, and how that debt is treated in any payment to you that depends on the company’s results.

Staying involved

For a seller who wants the business to carry on smoothly, BDC lists several ways to remain involved after a sale: vendor financing, an earn-out, a phased transfer of ownership, or a role as an executive, board member or advisor. If a buyer proposes any of these, ask who controls decisions that affect the amount you are paid, and how the earn-out is measured. See What rollover equity terms should the vendor negotiate? for the equity side.

Notice to the Competition Bureau

The Competition Bureau says Part IX of the Competition Act requires parties to notify it of certain transactions when they are of a specified type, exceed certain thresholds and are not subject to any exemptions. Whether your sale meets those tests is a legal question, so raise it with your lawyer early.