I’ve been contacted by two different private equity companies about partnering. My question is, how do I know if they’re legit, especially considering that I’ve never heard of them and they’re not the big names with the consolidators? Also, how do I find out if they’re contacting any other MSOs but also stay confidential?
With ongoing interest in the consolidation of the industry, it’s no surprise that you’re being approached by multiple private equity firms, some of whom are not familiar and may be trying to break into the market. I would not measure the legitimacy of the firm by how active they’ve already been in the market, as most private equity firms have a varied portfolio of investments.
Most firms will readily share details about their track record with prior or pending investments. They should also be willing to put you in touch with owners with whom they’ve worked with to get a feel for what it’s like to work with them. Make sure to ask for owners of a few successful deals and maybe one or two not-so-successful deals.
Before all that, however, I would focus on whether you’re talking to people you like, trust and believe you can work with, as partnering with a private equity firm may mean a high level of intrusion (and giving up some degree of control) in the business.
To answer the second part of your question, assume they’re contacting others. In recent years, private equity firms have treated collision industry events like speed dating trials. And many shop owners readily speak with them to gather intelligence, even if they don’t see a transaction in their immediate future. Should you get to a point in discussions where you’re sharing details you don’t want repeated, ask for a non-disclosure agreement.