Should You Engage with Private Equity (PE) and Investment Bankers (IBs):

Ephor Newsletter

This is a difficult and complex subject. In general, if you are truly serious (and not just “fishing”) about exiting or wealth transfer initiatives in the near term then the answer is yes. However, based on the current political and economic disruption in general Ephor’s guidance is NOT to engage. If your reason to “fish” with PE and IBs is to get a range of value on your company: our strongest guidance is NOT to do so, especially due to all the recent and near-term “disruption in the markets. The facts are well-known that Enterprise Valuations, especially in “asset light services”, are deflecting downward. Enterprise Value increases are “reserved & exclusive” for only the best and least risk profile business models. (click here to review the Attributes of Least Risk Profile Service Businesses)

If for whatever reason you are ready, serious, and committed to exiting or wealth transfer. Unless the PE or IB you are “fishing with” is willing to invade the company (invest 1-2 days) and do what is commonly called “qualification due diligence”, resulting in a detailed Enterprise Valuation (EV) document: At Ephor we state stand down.

It is only logical that for any competent IB or PE to provide you and your shareholders with an “accurate and relevant” EV they must evaluate, “know” and study you and your business. At Ephor we simply ask you this logical question: Logically without a thorough evaluation process (risk profile and organizational evaluation) how can anyone provide you even a directional EV valuation.?

Unfortunately, especially recently we have received an escalating number of emails from your peers stating that they are “fishing” with an IB or PE and they are being told based only a financial data that the EV of their company is “$$$$”. Subsequently only after engaging with the IB or PE is the Founder/CEO Entrepreneur then told that the EV is less than the initial “off the cuff” EV.

Generally, the IB/PE rationalizes the decrease in EV due to some “risk factor or flaw in the business”. Sadly this “bait and switch” technique is an escalating trend. This occurs simply because the IB/PE community is having “a hard time”, just like you, during these difficult and vicissitude-centric times.

This is a subject that requires significant professional expertise and discussion. At Ephor we urge you to seek competent and experienced professional advice in all aspects of exiting and wealth transfer. This subject for most is one of the most, or the most, important financial decisions of your and your family’s life. (see Founder & Shareholder Liquidity And Exit Options in our Knowledge Library.)

If you would like our input or guidance on your specific situation please contact

Regards and Best of Luck!

Garry E. Meier Strategic Advisory Practice Lead Ephor Group, Inc.