In this eye-opening episode, Alexis Sikorsky, Owner of Sikorsky Consulting Ltd, shares how to prepare for a strong private equity exit in stage 5. If you worry about leaving money on the table, fear private equity as the enemy, or feel stuck in growth and decision fatigue, you won’t want to miss it.
You will discover:
– What assessment and preparation steps dramatically improve your valuation and exit outcome
– Why private equity is your friend, not your enemy, when you understand how they actually value and buy companies
– How to reverse due diligence on PE firms to avoid bad partners and fish-and-chip tactics
Episode Transcript
Scott Ritzheimer
Hello, hello and welcome. Welcome once again to the start, scale and succeed podcast, the only podcast that grows with you through all seven stages of your journey. As a founder, I’m your host, Scott Ritzheimer, and if you’re leading a company and you’ve poured everything you have into it, either on the back of your mind or, like right there in the front of it, you’re wondering whether you’re actually going to get to cash out. And that can be easier said than done, but it can be a lot easier if you know the right path to getting there. And that’s why we’ve got today’s guest with us, because he’s done exactly what you’re trying to do, and now helps other founders to do the same with us.
Today is Alexis Sikorsky. He’s a strategic advisor to founders who are serious about scaling fast and exiting strong with a nine figure private equity exit under his belt, Alexis isn’t speaking from theory. He has lived this to the entrepreneurial highs and lows across decades of company building, boardroom, negotiation and international leadership. His flagship book, cashing out, lays out the apex methodology, a four point framework we’ll dive into here in just a moment. That demystifies the journey to private equity for founders from feeling stuck or overwhelmed by growth and decision fatigue. He’s here with us today. Alexis, welcome to the show. Thanks for joining us from the other side of the pond here. Always exciting. Having someone from your neck of the woods, I’m wondering if we could just kind of set the stage. Your book opens with this premise that founders are often leaving an enormous amount of money on the table, not so much because their businesses aren’t good enough, but because they don’t know how private equity actually works. What is it that so many founders get wrong when it comes to private equity?
Alexis Sikorsky
Good evening, Scott. Thanks for having me. There’s a lot of things they do wrong, but I’d say the fundamental mistake is thinking peace the enemy. So that’s partly private equity’s fault and partly founders fault, because they don’t do the due diligence, they don’t do the research. But there is many factors that will involve that will be involved in the valuation of a company, right? You have your like, numerical factors, your EBITDA, your multiple, multiple will depend on the side, on the market, etc, etc.
But there is tons of things you can do to improve your your valuation. And just give you one example. Everybody thinks private equity buy a multiple of EBITDA, right? So you sell 10x or EBITDA, 8x 12x depending on your mind, that’s actually not true. They don’t buy a multiple of the EBITDA. They buy a multiple of something they call nominal EBITDA, which is basically what they think the EBITDA will be after you sell the company. And these are two very, very different numbers, and it’s one of the way they make money, right? You have a million EBITDA. They think, okay, so I reorganize, restructure like that. I have a very good like, top of the line, bottom of the line, special expenses, and then my nominal EBITDA is not one. Actually, it’s 1.5 so that’s a very, very simple example of how you improve your valuation.
Scott Ritzheimer
So one of the challenges that I think folks have is, you know, founders want to go in and sell high. PE, to some extent, wants to come in and buy low, and it can just kind of feel antagonistic out of the gate. And so how do we get over that antagonism? How do we stop thinking of PE as the enemy and start working toward our common goals?
Alexis Sikorsky
PE is not trying to buy low. That’s one of the legends. P is trying to buy at the right price, and you’re actually trying to sell at the right price as well. So if you are knowledgeable, if you know how P work, happy calculate, actually it should be the exact same number and another like. That’s something that’s been puzzled me my whole life, my whole career. When you start negotiating with a private equity, when you get to the point that you are in exclusive deal, while you get a letter of intent, the private equity will start do a due diligence of your company. It’s going to be pretty thorough. I call it the six months colonoscopy.
It’s gonna be a pretty thorough due diligence. On your side, you’re selling your company that you’ve been working years in. You basically choosing, not only you choosing the guy who makes the check for you, but in private equity deal, mostly you choose your boss, right? And so that’s basically, as a founder, the most important decision in your life. And yet they don’t do a due diligence. They don’t do private equity due diligence. It puzzled me, and to be honest, it puzzled my private equity friends as well. These guys are why don’t they do a due diligence on us? And they. Are ready for due diligence. They understand it should be happening, but they don’t, then that’s a super key component.
Scott Ritzheimer
Yeah, I love the idea of turning that around one of the other. And feel free to tell me if this is a myth, because I’ve not seen it quite play out this way in the real world. But there’s this idea for founders that, like nobody will care about their business as much as they don’t, or nobody will lead it as well as they did. Or if I sell to private equity, they’re going to gut it and it’s going to lose its soul. How do we, how do we, you know, maybe there are some private equity players who do that, but that should be a function of due diligence, right? How can we look for the right things in our future Boss To use some of the language from earlier?
Alexis Sikorsky
That’s absolutely very important, and it’s usually seeds in a misunderstanding of what a private equity is. A private equity is is think of a private equity as a real estate investor. Private equity, it’s not a risk play. It’s a leverage play, right? They will borrow money from the bank to buy your company, as long as your company doesn’t get bankrupt or doesn’t get lower in terms of EBITDA, that what they were buying, they’re going to make money, and they’re going to make tons of money. I don’t want to get into details, but basically, you a private equity buys a company that does a million revenue, with million EBITDA, with five years, the companies still do it a million EBITDA, and they made 5x right? So it’s, it’s a leverage play. So what they need is they need to de risk, because the only time they lose, well, they never lose, but the only, the rarest of time they lose, I say they never lose. I’m talking small, mid cap here. I’m not talking the $10 billion deal. The reason they never lose is they de risk a lot, and the thing they hate the most is firing the founder. I would be lying if I say doesn’t happen. It does happen, but there has to be a really, really good reason they are not in the business of running companies. That’s not what they do. And I know because I’m I work as kind of interim CEO for private equity when they have to fire the founders, and if that happens, like, that’s, mean, the deal was very, very up.
Like, being completely misunderstood, and like, I’ve been working on a company in Paris for a few months, because the seller was actually cheating. They cheated the private equity. Private Equity failed to see it in due diligence. They had to fire the guy for stealing. That’s the kind of teacher. But most of the time, firing the firing the founder is not what they want to do. It still happens, but it’s not what they want to do. Then breaking it for parts like, unless you are a multi billion dollar company, I know no company that does like, 50 million or 100 million revenue that could be breaking for parts like, it’s ridiculous. Will they will they care about your company less than me, yes, because they will care about different things, private equity or an Excel spreadsheet. They don’t give a flying about your cousin who’s your accountant. And you’ll be very sad if you want them to care about stuff, which I did, you have to make them. The way you make them is contract. You do key person contract. You be sure they are treated well, but they’re not going to treat them well because you like because they like them, that they don’t care. And the last thing I want to mention, and one of the main reason you do due diligence, is actually none of what you describe is actually real world problem. It does happen, but if you do a proper due diligence, and after that, maybe I’ll spend 30 Seconds to explain to you how I make private equity do due diligence, but the thing you have to guard against, which is very common, is what we call fish and chip.
So that’s a very common practice in private equity, and that really the private equity who do that should be avoided like the plague. So the play is they fish you with a very high valuation. So okay, I’ll give you 100 million for your company. Do a letter of interest for 100 million. Do an exclusive D going exclusive negotiation for 100 million. Start a due diligence. Do six months of due diligence, and come and say, oh, did we didn’t really like what we see. It’s actually going to be 92 that’s very, very common. You should guard against that a lot, because it’s extremely efficient. It’s very, very difficult to say no to 92 million when you thought you’re going to get 100 million. Because, first of all, you exhausted. The due diligence is exhausting. Also, your company is struggling a little bit, because for the past six months, you haven’t worked on your company at all, but just on your due diligence. And you’re a human being, you start. Spending the money in your brain, or if you’re like me, in real life. So, and the way you got that is the due diligence on private equity is the simplest you can think of. It’s it’s purely a reputation play. So what? What I do, and I do that for every single one of my clients when we are in discussion with a private equity.
I usually do that before the letter of intent. I say, Okay, now I’m going to do my due diligence on you. And the way I’m going to do you did due diligence is talk to people you actually bought, because PE who behave badly tends to repeat that behavior, right? So what I’m going to do, I’m going to say, Okay, give me five names of people you bought and that I can call. So obviously, I take the five names and don’t call any of these guys, because it’s of no interest. So I go on their website find out the company they acquired. They’re usually very public about the company. They acquire private equity, if not. Well, you have to dig a little bit to find them. Contact these, these people on LinkedIn and say, Hey, I make you a deal. I buy you a beer in exchange of you telling me how the deal with PX went. I’m yet to meet the founders who didn’t want to share and say, No, I’m not talking to you about it. So it’s super simple. It requires no technical knowledge. Is just like banking on the fact that people like to tell them their stories.
Scott Ritzheimer
I love that. I love that. And and so you’ve got this really easy due diligence that just about everyone’s skipping but has no reason to. And I like that. Now you also have this Apex methodology, and because we’ve got a relatively short format here, I don’t want to dive into each of the different parts, but help me understand where that fits in this process, and what you think are some of the biggest differences that using the methodology creates.
Alexis Sikorsky
When you say methodology, people will will think, KPMG, right. It’s it’s not like step by step methodology. It’s more like meant to know, to not forget stuff. And what most people forget is the A part of the methodology, the assessment. Know who you are, know who your company is. Do you have the proper numbers? Do you know your numbers? Do you know your clients? Do you know your unique selling proposal? Do you know your market like, just the basic knowledge of your own company? Keep in mind, I don’t deal with large cap, right? That’s not, I’m not talking to the billion dollar revenue company. That’s not where my skill set lies. And anyway, they’re not going to call me. It’s not, I don’t have the these guys work with with investment banks, right? I’m talking your my sweet spot is the 100 million deal, right? So I’m talking 100 million, I’m talking to five to 10 million EBITDA companies, give or take, and they all pretty much at some point reach the same issue that I had them to fix.
And the assessment part is part of that, right? And you reach a point i i call it, for simplicity, and it’s probably going to be the subject of my next book. Is the 10 million ditch. So you, you started your company, you bootstrapped, you worked super hard, took you somewhere between three years to 10 years to get to a 10 million revenue. And now you’re stuck. And the reason you’re stuck, there are many reasons you’re stuck, but there’s three main reasons you’re stuck that I help with. The first one is, I call it founders fatigue, but it’s not fatigue in the New Age sense. Oh, I’m tired and then I want a better work lifestyle balance, because I’m previous generation. We don’t care about that. It’s more like I’m now so much ingrained in my company, so I spend most of my time in the company, and no time on the company. Put it otherwise, which is like what I literally put on the desk of my most my clients, is do not confuse what’s urgent with what’s important.
Yeah, and that’s a big, big, big issue. Most founders have. They are so preoccupied with what’s urgent, they tend to forget what’s important. And the good thing is, that’s a super easy fix, actually, just thinking about it, it’s half of the problem solved. Second problem is you go from a company that blood and tears and sweat, right and family and friends and late night and Foosball games and whatever, and now you need a company that’s processes, procedures, people, and so that’s and the first, usually the first area it shows is the numbers. To that point, you usually don’t have a proper CFO. You shouldn’t have a proper CFO in that 10 million revenue company. But that’s. Mean you don’t have the right numbers on your company. You even have, like, I see the two extreme, you have the guy who gets his numbers once every quarter, which is, it’s deadly, it’s too late. Like I’m flying my plane and I over without a GPS, overshot my airport by 500 miles, too late.
And the other extreme is the guy who gets 50 pages of detailed financial analysis from his accountant every month that he doesn’t look at because it’s not it’s not credible enough. So all that stuff, all procedural and stuff. So that’s the second the second issue, and the third issue, which is the trickiest to solve, is now you reach a point when you need C level people, right? You need like, good people in your company, yes, and you cannot afford C level people like CFO. It’s the first example you have. You have 5 million revenue company, 1 million a bit die. You hire a CFO. It’s a third of you a bit dark. You can afford a CFO. It’s same with SEO. A CTO. Like sales and marketing are usually badly managed in these companies. And so, yeah, I don’t know if I even answered your question. I apologize.
Scott Ritzheimer
No, it’s spot on. And folks who are listening will recognize a lot of this from from, you know, guests and things in the stage four process. And so yeah, there’s a lot in there that we can explore. And I love that you take that also through the lens of, how do we get ready for PE on the backside of it, not just how do you get past that frustration or the fatigue, but how do you actually cash out on this for there’s one question that I want to get to here. It’s question that I ask all my guests, and I’m very interested to hear what you’d have to say. But the question is this, what is the biggest secret you wish wasn’t a secret at all. What’s that one thing you wish everybody watching or listening today knew?
Alexis Sikorsky
PE is your friend, not your enemy. Private equity is the reason founders get respected. Like move your brain. 20 years ago. You’re a founder of brick and mortar company. I know tons of example, but I don’t know you manufacture precision instruments, or you are one of my clients is a sport timing company. You getting close to retirement. What do you do? You go see a larger company and try to sell yourself to a larger company, there is five potential buyers. How good do you feel in this negotiation? Not Not really, you’re going to not sell well, but you’re going to be treated like you’re going to be treated like a second class citizen.
Then Then comes private equity, and suddenly there is one of you and 50 of them. Suddenly, not only you have the upper hand in the negotiation, but they treat you well. And I think it’s something super, super important that nobody ever talks about like you’ve been sweating. You’ve been like most of founders will know that, like at some point they’ll have to mortgage their house. At some point they’re gonna have to to have trouble in their family, to lose friends, to miss on birthday and stuff like that. The least you could expect is when you’re ready to exit, at least you’ll be treated. You’ll be treated well. For me, it’s something very important.
Scott Ritzheimer
It’s so good, and I love reshaping that space and having someone like yourself come alongside to connect you with the right people who can do that and help you do the due diligence on them along the way. Which brings me to my last question here before I let you go, and that is, there’s definitely some folks listening today who’d want to know more. Maybe get a copy of your book. Maybe work with you directly. How can they find out more about you and the work that you do?
Alexis Sikorsky
The easiest is on LinkedIn. Find me on LinkedIn. I’m lucky enough that I have a name that’s a little bit uncommon, so I’m easy to find. Just please, please for you listeners, please do me a favor when you message me on LinkedIn, please say you come from Scott’s podcast, and because I get so many, so many messages, I try to answer to everyone. So if I know you come from a podcast, I’ll try to be careful and answer answer as fast as I can.
Scott Ritzheimer
That’s excellent. Alexis, thanks so much for being on, for sharing with us, for helping dispel a couple of big myths in the world of founders that I think will go a really long way. I appreciate you being on really was a privilege and honor. Having you here today, this evening, and for those of you watching and listening, you know your time and attention mean the world to us, I hope you got as much out of this conversation as I know I did, and I cannot wait to see you next time. Take care.
Contact Alexis Sikorsky
Alexis Sikorsky is a strategic advisor to founders who are serious about scaling fast and exiting strong. With a nine-figure private equity exit under his belt, Alexis isn’t speaking from theory—he’s lived the entrepreneurial highs and lows across decades of company building, boardroom negotiation, and international leadership. His flagship book, Cashing Out, lays out the APEX methodology, a four-part framework (Assess, Plan, Execute, Exit) that demystifies the journey to private equity for founders feeling stuck or overwhelmed by growth and decision fatigue.
Want to learn more about Alexis Sikorsky’s work at Sikorsky Consulting Ltd? Check out his website at https://www.asikorsky.com/
Connect with Alexis through his LinkedIn at https://www.linkedin.com/in/alexis-sikorsky-consulting