If you’re looking for private equity investors to invest in your business go through Advent Partners, you’ll want to focus on a few key factors. These include an attractive multiple, a solid business plan, and a debt-carrying capacity. While each of these factors is essential for the success of your business, the right mix of these factors is crucial for a successful partnership.

Attractive multiple

Private equity firms are rewarded for their investments by offering shareholders attractive multiples. These multiples are calculated by dividing the paid-in capital by the committed capital. Consequently, the PE firm will pay a higher price if it can secure the deal. Often, this number is calculated by using a formula that measures the fund’s internal rate of return (SI-IRR).

In this example, a private equity firm purchased a business for $4,000. The private equity firm structured its ownership as a mixture of 50% debt and 25% seller debt. As time passes, the debt portion of the ownership will decrease and the equity portion will increase. Over the past five years, the valuation of the company has remained constant at $4,000, but it will likely grow.

Realistic business plan

One of the most important things private equity firms look for in a company is a realistic business plan. This plan should clearly define the market for the product or service the company offers and should detail the number of potential customers. Moreover, the plan should be based on realistic financial projections. Moreover, the financial projections should be validated with competitive research. This research should assess similar firms and assess the realism and maturity of the financial projections.

The due diligence team spends time getting to know the target customer segments. After learning about the target market, they sketch out the market segmentation, size and growth rate. Next, they look at the competitive landscape of each segment and evaluate its profitability and promise. They also approach these target customers directly.

Strong market position

Companies that have strong market positions benefit from lower competition, lower risk of substitutes, and higher pricing power. This helps the company maintain a stable cash flow and reduces the risks for PE investors. It also helps the company grow faster and expand its customer base. These are some of the things that private equity firms look for in a company.

Companies that are well positioned in the market can be the perfect candidate for private equity firms. They can restructure investments for the future and avoid quarterly analyst calls. They can communicate with a smaller and more intimate investment community because they are not broadcasting their strategies or growth advantages to competitors. Public company managers can also gain shareholder support for long-term growth and development programs, but they have to communicate their plans convincingly and use the right metrics.

Debt-carrying capacity

One of the key factors private equity firms look for in companies is their debt-carrying capacity. In the first half of 2018, private equity firms issued more than $4 billion in debt, mostly for dividend recaps and debt restructurings. The firm paid out a $457 million dividend to shareholders last year, and since then, it has closed five facilities and laid off more than 1,000 employees. A Leonard Green representative declined to comment on the company’s financial troubles.

To assess debt-carrying capacity in a company, investment bankers look at the balance sheet and cash flow of the company. They look for key metrics, such as EBITDA, to determine how much debt can be sustained. EBITDA is a measure of the company’s earnings before interest, depreciation, and amortization. The more stable the EBITDA, the lower the risk of default.

Free cash flow

Free cash flow is one of the most important metrics for private equity firms to consider when considering a company. Unlike earnings per share, which can fluctuate year after year due to management decisions, FCF is a much better indicator of the company’s true value. It is important to note that free cash flow is not the same as EBITDA, which is a measure of a company’s cash flow minus expenses.

Debt-carrying capacity is another important factor for private equity firms. Different PE firms have different appetites for debt. The more debt a company can raise, the lower the equity needed. Moreover, PE firms need to take into account free cash flow, which is the cash left over after paying for capital expenditure.