Construction business: Selling to private equity vs. individual buyers!

Hi there,

Selling your construction business is a monumental decision. Whether you’re ready to retire, pivot to a new venture, or simply capitalize on years of hard work, choosing the right buyer is key. But how do you decide between selling to private equity or an individual buyer?

At N3 Business Advisors, we’ve helped numerous construction business owners navigate this crucial choice. Both options have their benefits and challenges, and understanding them is the first step to making a win-win deal.

Private Equity: A Bigger Fish in the Pond

Private equity (PE) buyers are investment firms looking to acquire businesses, grow them, and eventually sell them for a profit. They often target companies with strong growth potential.

Why Consider Private Equity?

• Deep Pockets: PE firms typically have significant capital, which means they can offer a higher purchase price.
• Growth-Focused: Their goal is to scale the business, so they’re often willing to invest in new technologies, markets, or services.
• Operational Expertise: Many PE firms bring in experienced management teams to take the company to the next level.

The Flip Side

• Loss of Control: PE firms often demand majority ownership, meaning you might have less say in the business post-sale.
• Short-Term Focus: Their primary goal is to maximize returns in 3–7 years, which might not align with your long-term vision.
• Cultural Shifts: The corporate approach of PE firms can feel impersonal compared to the family-like culture of many construction businesses.

Individual Buyers: A More Personal Approach

Individual buyers are often entrepreneurs or industry professionals looking to own and operate their own business.

Why Consider Individual Buyers?

• Personal Investment: Individual buyers are often deeply invested in the business and its legacy.
• Continuity: They’re more likely to maintain the existing team and company culture.
• Flexibility: Negotiations with individuals can be more flexible and less formal than with PE firms.

Challenges with Individual Buyers

• Financial Constraints: They may have limited resources, leading to lower purchase offers or more financing contingencies.
• Experience Gap: Not all individual buyers have the operational expertise to run a construction business, which could impact its future.
• Longer Negotiations: The process can take more time as individuals secure funding or learn the business’s ins and outs.

Key Considerations When Choosing

When deciding between a PE firm and an individual buyer, consider these factors:

1. Your Goals

• Are you looking for the highest price?
• Do you want to ensure your team and culture remain intact?
• Are you open to staying involved post-sale?

2. The Buyer’s Vision

• Does the buyer align with your vision for the company’s future?
• Will they take care of your employees and clients?

3. Deal Structure

• PE firms may offer earn-outs or equity rollovers, while individuals might prefer all-cash deals.
• Understand the tax implications of each option.

Real-Life Example: A Tale of Two Sales

Let me share two stories from clients we worked with at N3 Business Advisors.

• Client A sold to a PE firm. They secured a premium price and stayed on as a consultant for two years, helping the business expand into new markets.
• Client B sold to an individual buyer. The transition was smooth, and the buyer preserved the company’s family-oriented culture, which was a top priority for Client B.

Both deals were successful because they aligned with the sellers’ unique goals.

How to Prepare for the Sale

Regardless of whom you choose to sell to, preparation is key.

1. Get Your Financials in Order

• Ensure your books are clean and up-to-date.
• Highlight growth opportunities and profitability trends.

2. Build a Strong Team

• A capable management team increases buyer confidence.
• Document processes to make the business more turnkey.

3. Work with Advisors

• At N3 Business Advisors, we guide you through the complexities of selling your business, ensuring you maximize its value while minimizing stress.

Private Equity vs. Individual Buyers: A Comparison

Here’s a quick side-by-side comparison:

Aspect	Private Equity	Individual Buyers
Offer Price	Typically higher	Can be lower
Decision-Making	Corporate-driven	More personal and flexible
Control	Limited post-sale	Often retains company culture
Timeframe	Fast-paced growth goals	Long-term operational focus

My Personal Take

As someone who’s spent years working with construction businesses, I’ll say this: there’s no one-size-fits-all answer. The right choice depends on your goals, the strengths of your business, and the legacy you want to leave behind.

If you value rapid growth and a high sale price, private equity might be your best bet. But if preserving your company’s culture and relationships is more important, an individual buyer could be the way to go.

Don’t Forget the Bigger Picture

Selling your construction business is about more than just the transaction—it’s about ensuring the success of the company you’ve built and the people who’ve supported you along the way.

Ready to Start the Process?

If you’re thinking about selling your construction business, let’s talk. At N3 Business Advisors, we specialize in helping construction business owners navigate this journey.

Disclaimer:

Any information provided here is for informational purposes only. It should not be considered as legal, accounting, or tax advice. Prior to making any decisions, it’s the responsibility of the reader to consult their accountant and lawyer. N3 Business Advisors and its representatives disclaim any responsibilities for actions taken by the reader without appropriate professional consultation.