A private equity firm is eyeing my business, offering €2,400,000. Currently, we’re pulling in around €1.2 million, with a tidy 25% profit margin. As an apartment block management firm, I began this venture in 2019 at 21 as more of a side gig, never anticipating it would grow to oversee 1,200 units. It’s pretty surreal. I started with no capital, and all four of my staff, earning €30k annually, were trained by me. Now, facing this private equity proposition, I’m a bit in the dark. Any tips for a first-timer in dealings with a PE company?
Creating a throwaway account for personal reasons.
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Is this a full buyout? Do they want a majority stake and have you continue to grow the business? An ~8x multiplier at your size is a serious offer. I would have expected something closer to 4x.
Try to negotiate for a bit more and take the money and run.
Great offer, probably more than it is worth right now. However, I would consider all of the below:
- Your ability to further grow the company
- Your ability to increase profit margins
- Your ability to run this hands off
Where I am getting at is while this is a great offer if you, for example, see a realistic chance of getting this to a place where you will be making 500k profit a year while being hands off you pretty much can retire wherever you live or finance other ventures while having a stable cash flow. While 2.5m is nice money but dependable on where you live it might not be retirement level of money.
P.E. typically buys in bunches.
When they buy single firm, it’s usually an above average performer that happens to fit in with their expansion strategy.
Here, it is not uncommon to command a premium.
So, I would engage an appraiser who knows your industry inside and out and get professional opinion of value.
What kind of fake is this? Are they giving you 2.4M and you need to use that money to pay your creditors (asset sale)? Or are you keeping the whole sun and transferring the entity to them (stock sale)?
I can’t imagine not grabbing the €2.4 million when you’re clearing just €300K profit unless you have a solid expansion plan in place that you know for a fact will get you there in the future.
What’s your growth perspectives like? And how certain are they?
Like other said, it seems to be a super generous offer, however - if you have contracts in place to expand the business significantly, maybe that’s not the case.
In a 2 minute DCF (4% growth a year, 2% terminal growth, 15% wacc, no idea if any of these numbers are right), your value is just $2,300 (5 year dcf assuming NI = CFC, like I said super simple). which means you make a profit.
BUT if you do have those contracts in place, things might be different.
What does aprtment block business do?
I work in private equity consulting - specifically focused on helping companies getting ready for sale. Happy to chat live if you’re interested in getting some thoughts (interested in hearing how you built this business - been looking at that space). DM me if want to catch up.
But agree with everyone else thus far - punt that baby unless you have a bottleneck you know you can fix that would dramatically increase sales.
How did you start an apartment block management firm with 0 capital at 21?