Selling Your Business to Private Equity

Charlotte Puts You Close to the Money

Charlotte is the second largest banking center in the country, after New York. Bank of America and Truist keep their headquarters here, and plenty of investment professionals have followed.

That finance community means private equity is not an abstract idea for local owners. Many have already had a call or letter from a fund. Some have had several.

An approach like that can be flattering. It can also be the start of a lopsided negotiation, because the fund has done this many times and you may be doing it once.

What a Fund Wants to See

Private equity buys companies to grow them and sell them again later. Every question they ask ties back to whether your company can carry that plan.

• Enough EBITDA. Most groups have a floor, and smaller owner run companies often fall below it.
• Management depth. A team that runs the day, so the company does not depend on you.
• Recurring or repeat revenue that holds up when the economy slows.
• A spread of customers, with no single account carrying the business.
• Room to grow through new locations, services or acquisitions.

If you are still the person who quotes every job and holds every key account, a fund will see risk. Our page on succession planning covers how to change that.

Platform or Add-On Changes the Conversation

A fund buying a platform wants a company strong enough to be the base for a bigger one. It needs solid leadership and systems that can absorb other businesses.

An add-on gets folded into a company the fund already owns. The fund may need less management depth from you, but it will look hard at how well you fit with what it has.

Know which one you are being considered for. It affects the price, your role after closing and how much of your company keeps its name.

Rollover Equity Means You Are Not Fully Out

Funds often ask the seller to keep a slice of ownership in the new company, called rollover equity. You take most of your money at closing and reinvest the rest alongside the fund.

When the fund sells later, that slice can be worth a lot. It can also be worth little if the plan falls short. Treat it as an investment you cannot easily sell, not as guaranteed money.

Expect a Longer Goodbye

A buyer with an SBA loan usually wants a short training period and then a clean exit. Private equity often wants you to stay longer, sometimes as an employee with a title and targets.

Ask early what your role will be, who you will report to and what happens if you want to leave. Those answers matter as much to your daily life as the price.

Quality of Earnings Tests Every Number

Before closing, most funds hire an outside accounting firm to prepare a quality of earnings report. It checks your recast EBITDA, revenue trends and working capital line by line.

Add-backs that seemed fine in your own review can get cut here, and the price can follow them down. Clean books and well supported numbers are the best defense.

Our guide on SDE vs EBITDA explains the measure funds rely on.

Competition Keeps a Fund Honest

A fund that knows it is the only bidder has little reason to stretch. The best protection is a real process with more than one type of buyer at the table.

Strategic buyers, meaning larger companies in your industry, may pay more because your company fills a gap for them. Individual buyers using SBA loans can compete at the smaller end.

When a fund knows others are looking, its letter of intent tends to improve.

A broker brings those buyers in at the same time and compares offers on cash at closing, rollover, earnouts and your role, not just the headline number. Larger deals may call for M&A advisors.

Before you answer that next fund’s email, know your number. Fill out the valuation form or call (704) 555-0187. It is free and private.