5 Problems With Not Using a Private Equity Firm in a Merger

Strategic decisions are important when making merger and acquisition decisions. Compared to trade enterprises, private equity firms have a different operating model where the focus is on making a good purchase and increasing value over a particular period. Organizations have to choose whether or not they think working with a private equity firm makes sense for their purchase. While some organizations might choose to forego working with a private equity firm, it’s essential to recognize the potential challenges that can come up when making a merger without the seasoned guidance and resource support from a private equity firm.

1. Missed Networking Opportunities

A merged entity needs to have access to growth opportunities after the merger. This is one of the areas where a private equity firm shines. They can use their extensive networks to connect industry experts, key stakeholders, and potential partners for the merged entity. It can be difficult for companies making a merger to build their relationship network. These types of networks are critical when positioning the company in the marketplace and creating growth.

2. Lack of Risk Mitigation Strategies

Private equity firms specialize in risk mitigation strategies where they can channel their expertise through due diligence and risk identification to make sure that the merged entity is protected. Strong risk mitigation strategies protect companies by making sure that they can grow after the merger with financial stability and continued valuation. The business landscape is competitive, and risk mitigation protects the investment (and subsequent risk) of merging two companies.

3. No Deal Structuring Expertise

Deal structuring is a nuanced process that requires a deep understanding of financial intricacies, market dynamics, and the specific goals of merging entities. Private equity firms specialize in this complex area and can help negotiate and structure deals for maximum value for the company. They have years of experience making smart decisions about the appropriate mix of debt and equity as well as establishing valuation metrics.

4. Decreasing Long-Term Value Creation

Private equity firms are focused on fostering sustainable growth and value over an extended period. Without a private equity firm on their side, companies might find that they lack the forward-looking strategy they need for long-term growth and value creation. Companies without a structured roadmap that is both strategic and patient may find that their value decreases over time instead of growing as a valuable asset.

5. Reduced Operational Support

Operational support is a critical component of a successful merger. Private equity firms bring a wealth of operational expertise and best practices to the table, derived from their experience managing diverse company portfolios. These firms often have dedicated operational teams that work closely with portfolio companies to identify areas of improvement, optimize workflows, and streamline processes.

At the end of the day, companies need to consider the long-term implications of their merger rather than focusing on the immediate aftermath. From missed networking opportunities to the absence of risk mitigation strategies, each of these five problems is most likely to occur without support from a private equity firm. Hence, a private equity firm is important.