How Your Life Changes when You Are Acquired by a Private Equity Firm (2024)

FAQs

What happens when you get acquired by a private equity firm? ›

A company is bought out by a private equity firm, and the purchase is financed through debt, which is collateralized by the target's operations and assets. The PE firm buys the target company with funds from using the target as a sort of collateral.

Private equity acquisitions can lead to significant changes in the workplace for employees. Immediate effects may include leadership and management changes, along with potential job security concerns. Long-term implications can involve cultural shifts and alterations in compensation and benefits.

Private equity investors are strategic buyers. The deal structure likely will give the PE fund a majority ownership stake — perhaps as much as 80 percent of the company. The current owners will be expected to retain the remaining ownership stake.

Work-life balance is a challenge for many professionals, but especially for those in private equity (PE). PE is a demanding and competitive field that requires long hours, frequent travel, and high performance under pressure.

You can ask for more here, but it's hard to do too much here. Most acquirers have a general set of rules with what they want to do here. The CEO of the startup being acquired can try to rejigger things with the acquirer before the deal is signed.

Management restructuring and financial restructuring are common post-acquisition actions aimed at improving company performance. Private equity ownership often leads to strategic reorientation and significant investments in growth initiatives.

Drawbacks / Disadvantages:

Still fairly long hours and an intense work environment, and significant travel may be required, especially as you advance. There may not be a clear path to advancement at your firm, depending on the firm's size and policies and your level.

Private equity firms buy companies and overhaul them to earn a profit when the business is sold again. Capital for the acquisitions comes from outside investors in the private equity funds the firms establish and manage, usually supplemented by debt.

In return for this large investment, PE firms expect the value of the acquired company to steadily grow, so they can eventually exit by selling their equity stake for a profit. This means that working for a PE-backed business can be a rewarding, yet demanding, experience.

For business owners, selling to a private equity group can help mitigate personal financial risk. By diversifying personal wealth and reducing the reliance on a single business's success, owners can achieve a more secure financial future.

What happens in a private equity buyout? ›

Understanding Buyouts

In private equity, funds and investors seek out underperforming or undervalued companies that they can take private and turn around, before going public years later. Buyout firms are involved in management buyouts (MBOs), in which the management of the company being purchased takes a stake.

Many consulting jobs require travel Monday through Thursday every week. If we compare this with private equity, your hours are primarily spent in the office, particularly at the start. You will certainly travel in private equity (to meet with investment targets, to go to conferences, to attend board meetings, etc.)

In private equity, you'll also be responsible for a lot of different tasks. The deal teams are lean and your decisions will have a high degree of permanence, which is why I'd say the stress level is overall higher in private equity than in banking. Very importantly, there's also no one around to check your work.

Private Equity Associate Lifestyle and Hours

At many smaller funds and middle-market funds, you can expect to work 60-70 hours per week, mostly on weekdays, with occasional weekend work when deals heat up.

If it's an “all-cash” deal, your shares will vanish from your portfolio upon closing, replaced by the specified cash value. Conversely, if it's an “all-stock” deal, your shares will be swapped for shares of the acquiring company.

There are two typical outcomes if you have employee stock options and an M&A occurs, the acquiring company can cash you out or give you company shares. If the acquiring company cashes you out, your outcome is simple: you receive cash and pay taxes on the gains.

Using history as a guide, when Thoma Bravo buys a company, the first impact is managerial turnover, layoffs and cut-backs. For the user of software, this translates to a redefinition of the relationship.