Overview of the

Private Equity
Deal Process
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Usually investment bankers
represent companies for sale

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The bankers prepare a "teaser"
— one-pager that gives you an
overview of the business for
sale

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If the PE firm likes it, they'll
sign a NDA

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Then, the investment bank
sends the PE firm the CIM

(or "deck" or "book" or

"memo")
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The CIM is a full presentation
(usually 50-100 pages) all
about the business for sale

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The PE firm will build a basic
model (usually LBO) and
perform some initial research

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If all looks good, the PE firm will
submit an IOI ("indication of
interest") to say they're
interested in learning more

(usually has valuation range

instead of one number)
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If the investment bankers feel
the IOI is "within range,"
they'll continue the process
with the PE firm

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The PE firm does more diligence and
eventually submits a document called a
LOI ("letter of intent") — this says "we like
the deal enough to buy the company
assuming all our diligence checks out“

(this has an actual valuation, but the

document is non-binding)
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Then everyone agrees it's time to
meet…

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The bankers set up a meeting
with the PE firm and the
company so everyone can get to
know each other (usually an
onsite meeting) — business tour,
Q&A, followed by more casual
dinner/drinks in the evening
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Then, the PE firm moves forward
with formal diligence

(huge process: modeling, industry

research, customer research,
background checks, accounting
checks, process checks, everything)
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A big part of this (for newer
professionals) is building a model
that shows lenders the deal is
attractive enough to finance with
debt

(and the PE firm will bring equity)

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If all still looks good, it moves to
the legal stage where lawyers
trade drafts of the Purchase
Agreement

(either Asset or Stock purchase)

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This agreement should mirror
the terms in the LOI

(or at least the latest

understanding b/t everyone)
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The PE firm keeps track of the
business performance as the
months go on

(whole process takes ~3-9

months)
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If the business continues to
perform well, diligence
continues smoothly, everyone
likes each other, everyone
agrees on the legal stuff, then:
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The deal "closes." This means
the PE firm "calls capital" from
its investors (equity), and
lenders bring their "debt
capital" as well
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The money goes to the seller
& pays the seller's expenses,
and from there the PE firm
now owns the company, or at
least a majority portion
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Often times the new ownership
will be 60% PE firm / 40% seller

(or whatever was decided upon

in advance)

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They work together to grow
the business (and buy other
ones) over the next 3-7 years
and eventually start the whole
process over again and sell to
someone else
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Thanks, I’m Chris.

What I do:
• M&A / FP&A Consulting
• Financial Modeling Education

Check the comments for ways to

improve your modeling ↓
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