Selling Your Business to Private Equity: What to Expect

Private equity firms are the most active buyers in the middle market right now. If your business is doing $1M+ in EBITDA, there's a good chance a PE firm has already reached out — or will soon.

PE deals can be incredibly lucrative, but they work differently from selling to an individual buyer or a strategic acquirer. Here's what you need to know.

How Private Equity Acquisitions Work

PE firms raise capital from institutional investors (pension funds, endowments, family offices) and deploy that capital by acquiring businesses. Their goal is to grow those businesses and sell them at a higher valuation within 3-7 years.

There are two main types of PE acquisitions:

Platform Acquisition

The PE firm buys your business as the foundation for building a larger company. They'll install professional management, invest in growth, and acquire smaller companies ("add-ons") to build scale. Platform deals command the highest multiples — typically 5x-8x EBITDA or more, depending on industry and size.

Add-On Acquisition

A PE-backed company acquires your business to bolt onto an existing platform. Add-on deals are smaller and typically close faster, but multiples are lower — usually 3x-5x EBITDA — because the platform absorbs your overhead and captures synergies.

What Multiples Does PE Pay?

PE multiples vary significantly by industry, size, and growth profile:

Size premium: Within any industry, larger businesses command higher multiples. A home services company with $5M EBITDA might sell for 6-7x, while one with $1.5M EBITDA sells for 4-5x. Crossing key EBITDA thresholds ($1M, $3M, $5M, $10M) unlocks higher-multiple buyer pools.

Deal Structure: It's Not Just About the Multiple

PE deals are structurally more complex than most business sales. The headline multiple is only part of the story.

Cash at Close

You'll typically receive 60-80% of the purchase price in cash at closing. This is your guaranteed payout.

Rollover Equity

PE firms almost always ask the seller to "roll over" 10-30% of their equity into the new entity. This means you retain an ownership stake in the business post-sale. The idea is that your rollover equity grows in value as the PE firm scales the business, and you get a "second bite of the apple" when the PE firm eventually sells the platform.

Rollover equity can be extremely valuable. If the PE firm doubles the company's EBITDA and sells at a higher multiple, your rolled equity could be worth more than your initial sale proceeds. But it's also illiquid and subject to the PE firm's execution.

Earnouts

Some portion of the purchase price (typically 10-20%) may be tied to post-closing performance targets — usually revenue or EBITDA benchmarks over 1-2 years. Earnouts help bridge valuation gaps but come with risk: if you don't hit the targets, you don't get the full payout.

Working Capital Adjustment

PE deals include a working capital "peg" — an agreed-upon level of working capital that must be in the business at closing. If actual working capital is below the peg, the difference is deducted from your proceeds. This is a negotiation point that can shift hundreds of thousands of dollars.

Employment Agreement

PE firms typically want the seller to stay on for 1-3 years post-close in a leadership role. Your employment terms — compensation, title, autonomy, non-compete — are negotiated as part of the deal.

What PE Firms Look For

Not every business is a fit for PE. Here's what makes your business attractive:

$1M+ EBITDA. Below this threshold, most PE firms aren't interested. The economics of their fund model require a minimum deal size.

Recurring or repeat revenue. Subscription models, service contracts, and high customer retention rates reduce risk and increase predictability.

Growth runway. PE needs to grow your business to generate returns. They want to see organic growth potential plus acquisition opportunities in your space.

Fragmented industry. If there are hundreds of small competitors that can be acquired and consolidated, PE sees a roll-up opportunity.

Strong management team. PE doesn't want to run your business day-to-day. They need a team that can execute the growth plan — ideally without the founder in a critical operational role.

Defensible market position. Brand strength, customer loyalty, geographic density, regulatory licenses, or specialized capabilities that competitors can't easily replicate.

How to Prepare for a PE Sale

1. Get Your EBITDA Right

PE firms underwrite on adjusted EBITDA — your reported EBITDA plus add-backs for owner compensation, one-time expenses, and non-recurring items. Work with your accountant to prepare a clean adjusted EBITDA schedule that's defensible under scrutiny.

2. Build Your Management Team

If you're the CEO, CFO, head of sales, and lead technician all in one, PE will be concerned. Start delegating. Hire a GM or COO. Promote from within. Show that the business has leadership depth.

3. Clean Up Your Data

PE firms run extensive financial due diligence, often including a Quality of Earnings (QoE) analysis. If your books are messy, you'll either scare off buyers or get a lower multiple. Invest in clean accounting now.

4. Document Your Growth Plan

PE wants to hear your vision for the next 3-5 years. What's the organic growth opportunity? What acquisitions could you make? What new markets or services could you add? Have a credible plan ready.

5. Hire an M&A Advisor

PE firms are professional negotiators. They buy businesses for a living. You sell a business once. Having an experienced M&A advisor levels the playing field and consistently results in better terms.

Red Flags That Turn PE Away

• EBITDA under $1M (too small for most funds)
• Heavy owner dependence with no management team
• Customer concentration — one client is 20%+ of revenue
• Declining revenue or margins
• Industry headwinds or regulatory risk
• Messy financials that won't survive a QoE
• Unrealistic price expectations

Is PE the Right Buyer for You?

PE isn't right for everyone. If you want a clean break and maximum cash at close, a strategic acquirer or well-capitalized individual buyer might be better. If you're willing to stay involved, take some equity risk, and potentially earn more on the "second bite," PE could be ideal.

The best way to find out is to run a competitive process with multiple buyer types and see who values your business the most.

Let's Talk About Your Options

If your business is doing $1M+ in EBITDA and you're curious about PE interest, I can help you understand the landscape and evaluate your options. Book a free call to get started.