By Andreas Pettersson, Founder, Leaders ADAPT
A fund partner calls. She has followed your company for a while, likes the sector, and would like to talk about a partnership. The word partnership is doing a lot of work in that sentence. What she means is that her fund would like to buy most of your company, borrow against it, grow it for five or six years, and sell it to someone bigger. That is not a criticism. It is the business model, and the owners who do well selling a business to private equity are the ones who understand it before the first meeting.
I have sat across the table from buyers when I sold Arcules to Canon, and I have since spent a lot of hours with owners who have a fund letter on the desk. The pattern is consistent. The owner thinks about the number. The fund thinks about the return. Those are different questions, and the gap between them is where most of the disappointment in these deals comes from.
Selling a business to private equity means selling to a fund that buys with a mix of its investors' money and borrowed money, expects to own the company for a set number of years, and needs your earnings and your team to carry its plan until it sells again.
Quick answer: A private equity offer is built backwards from the return the fund needs. It estimates the earnings it can grow, the exit price years later and the debt the business can carry, then sets a price split into cash, rollover and deferred payments. The fund wants a team that runs its plan without you. Say no when the cash alone is not enough or the team is not ready.
Leaders ADAPT is not an M&A advisor, a broker, a law firm or a fund, and no firm named on this page pays us. This is not legal, tax or investment advice. The exit readiness read is priced as one fixed fee, quoted once we have spoken. Every market figure here is a third party's published number, linked with the month I read it. Where a source has updated its figure, trust the source over this page.
How a private equity offer is built
Owners tend to imagine the offer as a price. It is closer to a spreadsheet run in reverse. Here is the order the fund works in, as I understand it from the buyer side.
Step one, the return. Every fund has a hurdle it has promised its own investors. The 2026 Pepperdine Private Capital Markets Report, summarised by Business Valuation Resources, puts the median expected return for private equity investing in companies with $1 million to $5 million of EBITDA at about 20% a year, and about 25% for midmarket companies. That is the starting point. Your company has to clear it.
Step two, the exit. The fund estimates what it can sell your company for at the end of its ownership, based on the earnings it believes it can add and the multiple a later buyer might pay. A survey of 79 private equity investors by Gompers, Kaplan and Mukharlyamov, published on the Harvard Law School Forum, found that funds judge deals mainly by internal rate of return and multiple of invested capital rather than by discounted cash flow, and put more weight on growing revenue than on cutting cost. Read that as a seller. The fund is not paying for your past. It is paying for a growth plan it believes your company can run.
Step three, the debt. The fund borrows part of the purchase price against your company's cash flow. The more debt your earnings can safely service, the more it can pay without putting in more of its own money. This is why a clean, stable EBITDA matters so much more to a fund than to an owner who has run the company on gut for years. A lender reads your numbers before the fund finalises its offer.
Step four, the headline. Out of those three comes an enterprise value, usually expressed as a multiple of adjusted EBITDA. Our EBITDA multiples by industry page shows the ranges published for different sectors.
Step five, the bridge to your bank account. The headline is not what you receive. The fund deducts your debt, adjusts for cash, sets a working capital target, and then splits what is left into cash at closing, a rollover into its holding company, and sometimes a seller note or an earnout. The letter of intent is where that split first appears on paper.
The useful thing about seeing the offer this way is that it tells you which levers you actually control. You cannot change the fund's hurdle. You can change how believable your earnings are, how much of the growth plan your team can carry, and how much risk the fund thinks it is taking on you.
What the fund is solving for: hold period, platform or add-on
Two questions shape almost every private equity offer for an owner led company, and owners rarely ask either of them in the first meeting.
How long will they hold it? The answer sets how long your team must perform under the new owner, and how long any rollover stays locked. Private Equity Info's analysis of 13,757 exits from 2021 to mid 2026 puts the typical hold at 6.0 years, up 1.1 years since 2021 (Private Equity Info, September 2026). Six years is a long time to work for someone else's plan. Ask what happens in year three if the plan is behind.
Are you the platform or an add-on? A platform is the first company a fund buys in a sector and builds around. An add-on is bought later and folded into a platform. The mix has shifted. Private Equity Info reported that platform deals fell from about three quarters of private equity acquisitions in 2021 to roughly half by the third quarter of 2023 (Private Equity Info, November 2023). That means many owners who get a call are being looked at as an add-on.
The difference matters more than the price. A platform needs a leadership team strong enough to run a buy and build plan and absorb other companies. An add-on is often valued on what it brings to the platform, its customers, its people, its region, and its leadership may be merged into someone else's. Same sector, same revenue, very different next five years for you and your managers. Ask which one you are before you ask about the number.
Rollover and structure in plain terms
Most private equity offers to owner led companies ask the owner to keep part of the stake. The common name for it is rollover. Instead of receiving all of the price in cash, you reinvest part of it in the buyer's holding company and own a minority position next to the fund.
Funds like rollover for reasons that are easy to understand. A guide from the law firm Fieldfisher lists three: it reduces the cash the buyer has to find, it keeps key people financially committed, and a seller who reinvests is signalling confidence in the plan. All three are true. The third one is also a test.
The same guide is clear about what you take on as a minority holder. The fund usually holds more of the shares and more of the control, including more board seats. Drag along rights let the fund force you to sell on its terms when it exits. Tag along rights let you join a sale on the same terms. Leaver provisions decide what your stake is worth if you leave early, with good leavers generally paid market value and bad leavers generally paid the lower of cost and market value. And the fund's own instruments may rank ahead of yours. Fieldfisher's practical advice is to raise these points at the term sheet stage, because they get much harder to change later.
Morgan Lewis makes a related point from the management side in a note for executives in buyouts (Morgan Lewis, November 2024). Buyers often require or offer that executives roll part of their proceeds, and the size and terms of that rollover are negotiable. New incentive pools for the team, retention arrangements and new non competes that run from closing are usually on the table at the same time.
I will not give you a rule for how much to roll. That depends on your tax position, your other assets and how much you believe in the plan, and it is a decision for you, your deal attorney and your tax advisor. What I will say is this. Treat the cash at closing as the price. Treat the rollover as a second bet on a plan you do not control. If the cash alone would not be enough for the life you want, the deal is not ready.
What the fund wants from your team
The fund is not buying you. It is buying a team that will run its plan for about six years under a board. That is a different job from the one your managers do today, and it is worth looking at your team through that lens.
A finance leader who can report to a board and a lender. Monthly close on a calendar, covenant reporting, a forecast that survives questions. If your bookkeeper and you are the finance function, the fund will either price that in or insist on a hire. A sell side quality of earnings before the process shows you what their accountants will see.
Someone who can run the plan, not only the business. A fund plan has an add-on pipeline, new markets, price changes and a reporting rhythm. The fund wants to see a person who can own that agenda week to week, so the board meeting is about decisions and not about the owner's memory.
Managers who will stay for a new owner. Your people have been loyal to you. The fund needs them loyal to the plan. Expect it to ask who is critical, design retention around them, and talk to them directly in diligence.
An owner whose role is clear. Chair, CEO for a defined period, adviser, or gone. Funds can work with any of these. What they discount is ambiguity. Our page on what buyers look for in a management team covers how they test the team, and owner role after selling covers what your days look like after closing.
The owners I meet most often grew the company by grind, tried a general manager once, watched it fail, and now want to sell rather than try again. I understand that. But a fund reads a missing second in command as risk on its plan, and it prices that risk in the structure: more rollover, a longer required stay, an earnout. The work our leadership team development guide describes is the cheapest way to change those terms, and it takes longer than a sale process does.
When to say no to a private equity offer
Saying no is a legitimate outcome. So is saying not yet. These are the signals I would take seriously.
- The cash at closing alone does not meet your needs. If the deal only works for you if the rollover pays off, you are betting your retirement on a plan run by someone else.
- The plan depends on you staying longer than you want to. A five or six year hold with you as CEO is a job, not an exit. Be honest about whether you want it.
- The debt looks heavy for a bad year. Ask what the business must earn to service the debt, and compare that with your worst recent year. If the margin is thin, so is the safety of your people and your rollover.
- You are an add-on and nobody has said what happens to your team. If the answer about your managers is vague, assume the worst case.
- The terms are moving after exclusivity. A price that slides once diligence starts is a signal about the buyer, not only about your company.
- Your team is not ready to run under a board. If the company still runs through you, the offer you get now is a discounted offer. A year of work often changes the price and the terms more than any negotiation.
None of these mean private equity is wrong for you. They mean this offer, now, might be. Our exit readiness checklist is a way to check what a buyer will test before you decide.
Where AI fits in a private equity sale
AI is useful in three places and dangerous in one.
It can model. Give an assistant the fund's indicative terms and ask it to lay out cash at closing, rollover, deferred payments and debt across three scenarios for the exit. You will see in an hour how sensitive your outcome is to the fund's plan.
It can prepare. Diligence lists are long. An assistant pointed at your own contracts, customer data and board notes can draft the first pass of answers and flag what is missing before the fund's team does. For companies on EOS, our guide on AI for EOS companies shows where that work fits the quarterly rhythm.
It can rehearse. Ask it to play the fund's operating partner and question your managers on the growth plan. It is a cheap way to find the weak answers.
It cannot decide. Whether to roll, how much, whether to stay, whether to sell at all. Those are judgments about your life and your people. Our page on what not to delegate to AI makes the longer argument. Use AI to see the deal faster. Make the call yourself.
What a private equity buyer does not fix
A fund brings capital, a board and a plan. It does not bring the things owners sometimes hope it will.
It does not fix your dependence on yourself. The fund will price that and write it into the structure, and you will carry it as a longer stay and more of the price at risk. It does not fix numbers that only you can explain. Its accountants will find the gaps and the price talk will reopen. It does not fix a team that has never run without you. It will either replace people or ask you to stay until they can. And it does not fix the question of what you do next. That one is yours, and it is worth answering before you sign.
If you are still deciding who should run the process, our business broker vs M&A advisor comparison is the place to start.
Who is on the bench for this
Steve Shaw is the fractional CFO on the Leaders ADAPT bench. Steve has twenty years in finance leadership and works with owners on clean books, cash discipline, financial positioning before a sale, and the numbers conversation with buyers and lenders. When a fund's model leans on your EBITDA and your debt capacity, Steve is the one who tests both before they do.
Thor Legvold is the leadership psychologist on the bench. He works on assessments, executive fit, team dynamics and the people decisions behind a sale. When a fund will ask whether your managers can run its plan, Thor helps you find out first, while there is still time to act.
Neither of them replaces your deal attorney or your M&A advisor. Every engagement runs through Leaders ADAPT. I run the first conversation, pick the partner who fits the fund's questions, and I am in every working session.
Selling a business to private equity FAQ
How does a private equity firm decide what to offer for my business?
It starts with the return it needs, not with what your company is worth to you. The fund estimates the earnings it can grow, the price it could sell for in five or six years, and how much debt the business can carry. It works backwards from that to an entry price, then adjusts for debt, cash and working capital to reach the figure you receive.
What return does a private equity buyer expect?
According to the 2026 Pepperdine Private Capital Markets Report, as summarised by Business Valuation Resources, the median expected return for private equity investing in companies with $1 million to $5 million of EBITDA is about 20% a year, and about 25% for midmarket companies. Every assumption in the offer has to fit that hurdle, which is why the price and the terms are linked.
What is the difference between a platform and an add-on acquisition?
A platform is the first company a fund buys in a sector, the one it builds around. An add-on is a smaller company bought later and folded into the platform. A platform needs a management team that can lead the whole plan. An add-on is often valued on what it brings to the platform, and its leadership may be merged away. Ask which one you are early.
What is rollover when selling a business to private equity?
Rollover means part of the price is not paid in cash but reinvested in the buyer's holding company, so you own a minority stake alongside the fund. You get a second payment if the fund sells well later. You also accept minority terms, such as drag along rights and leaver provisions, that decide what your stake is worth if you leave early. Have a deal attorney read them.
Will a private equity buyer keep me on as CEO?
Sometimes, for a while. Most funds ask the owner to stay through a transition and often longer, but they are buying a team that can run their plan for a hold period that now runs about six years. If the plan needs a different leader, they will look for one. Plan your role and your successor before the letter, not after it.
When should an owner say no to a private equity offer?
Say no, or not yet, when the cash at closing would not change your life without the rollover paying off, when the plan depends on you staying longer than you want to, when the price assumes debt the business cannot carry in a bad year, or when your team is not ready to run the company under a board. Waiting a year is often the stronger choice.
Is selling to private equity better than selling to a strategic buyer?
Neither is better in general. A strategic buyer may pay for what your company adds to theirs and fold it in. A fund pays for the earnings it can grow and the exit it can sell, and usually needs your team to stay and run. The right answer depends on what you want for your people and your next five years, not only the headline.
How long does it take to sell a business to private equity?
The process from first serious conversation to closing usually takes several months, with diligence the longest stretch. The work that sets the price takes longer. Clean books, a team that runs without you and a credible growth plan take 12 to 24 months to build. Owners who start that work before talking to buyers keep more of the negotiating power.
Decide what you are selling before they tell you
Here is the step for tomorrow morning. Write down three numbers: the cash at closing you need for the life you want, the number of years you are willing to work for a new owner, and the number of people in your company who could run it for a month without you. Then put them next to the call you just had.
If the first number is higher than you could expect in cash, the second is shorter than a fund's hold, or the third is zero, you are not choosing between private equity and something else yet. You are choosing whether to get ready first. That is a good choice to have, and it is yours.
What the first conversation looks like
It is a 30 minute call with me, not a sales rep. Bring the fund's letter or the notes from the call if you have them, or the number in your head if you do not. I will tell you what I think the fund is solving for, where your team and your numbers will be tested, and whether an exit readiness read is the right next step. If the honest answer is that you need a deal attorney or an M&A advisor this week, I say so.
If we go ahead, the read is a fixed fee quoted after that call. Steve takes the numbers, Thor takes the people, I take the whole, and you get a written view of what a fund will find and what to fix first.
Tomorrow morning, before the inbox: do the free assessments, which show me how much of the business still depends on you, and then spend ten minutes on the exit readiness page. Find out whether you are ready for the exit you are now excited about, before a fund decides it for you.
