Fund, Fund Me Do – 2

by Keith Basik on June 29, 2012

As mentioned in my first blog of Fund, Fund Me Do,  just like  The Beetle “Love, Love Me Do” song, “Funding”  is to the business world as “Love” is to the world of relationship.  Without funding and knowing how to get the funding, your great business idea (large or small) may never see the light of day.

In the first blog, we talked Private Placements.  In this blog, we will talk briefly about the second of the third party, equity financing sources–Private Equity Groups or PEGs (just in case you wanted to be in the “inter-circle”). The others will be discussed in subsequent blogs:

Third Parties:

  1. Private Placements
  2. Private Equity Groups (PEGs)
  3. Venture Capital (VC)
  4. Angels
  5. Hedge Funds
Private Equity
As indicated, most PEGS are financial buyers, but some have portfolio companies that qualify as strategic buyers for their add-ons.  Sources of funds can be the following:
  • Pension Funds – Public, Corporate, etc.
  • High Net Worth Individuals
  • Insurance Companies
  • Banks
  • Endowments, Non-Profit Foundations
  • Other Large Investment Funds

The PEGs invests in a business using a portion of debt and equity.  In most cases, as it relates to this, the PEG like to keep the principals and key management personnel in place; however, the control stays with the PEG.  In other cases, due to the amount of funding, the PEG may assume a minority position in the company, in exchange for their funds.

Other related factors:

  1. Equity Funding:  Typical range is from 10% to 50% Some PEG criteria are broad and some very narrow.
  2. Multiple Ranges:  For the most part, it varies.  Merger Market conducted a survey with the following results: The majority of respondents (73%) expect most EBITDA valuation multiples to fall in the 5x to 7x range in the upcoming year, while one-    fifth of respondents expect EBITDA valuation multiples to exceed 7x during this time. Leverage multiples are expected to fall in the 3x to 4x range, and many respondents believe these figures could increase with improved bank lending activity in the upcoming months. In short, it varies based upon industry and current market conditions.
  3. Target Companies:  As stated by IBBA, “PEG world is divided by the size of the EBITA of the targeted company, i.e., $1-$2 Million, $2-$5 Million, $5-$10 Million, $10 Million and above.

For a more in-depth look at PEGs, go to:

 

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