How private equity buyers work
A private equity firm raises money from investors into a fund, buys companies with that capital (usually alongside bank debt), works to grow them, and sells them again after several years. The aim is to sell for meaningfully more than it paid.
That has practical consequences for an owner. A private equity buyer is buying the future: growth, a management team that can deliver it, and a business that another buyer will want to own in turn. It is also a professional, repeat acquirer, so expect a thorough process and well-advised negotiation.
Family offices invest private family wealth in a similar way, often with a longer view and fewer pressures to sell within a set period.
Platforms and add-ons
Private equity firms buy companies in two ways:
- Platform investments - a business strong enough to be the foundation of a new investment, usually with a capable management team and room to grow.
- Add-on acquisitions - smaller businesses bought to join an existing platform, adding customers, capabilities or geography.
Both can be good outcomes. As an add-on, your business may be valued partly on what it brings to the group; as a platform, more on its own prospects and team.
What private equity buyers look for
- Reliable EBITDA, with clean financials that will hold up in due diligence.
- Growth in the past and a credible plan for more.
- Recurring or repeat revenue, and no dependence on one or two customers.
- A management team that can run the business without the owner.
- A defensible position - a niche, a reputation or relationships that are hard to copy.
- A sector they know, where they already understand what drives value.
How deals are usually structured
Private equity deals are rarely a single cheque. Common elements include:
- Cash at closing for most of the price.
- Rollover equity - you keep or reinvest part of your ownership in the new company, so you share in the value created when the firm sells again. This is sometimes called a “second bite of the apple.”
- Earn-outs or deferred payments linked to future performance, in some deals.
- An employment or consulting agreement if you stay on, often with a non-compete.
GF Data, which tracks middle-market private equity deals, reports rollover equity as one of its standard measures alongside multiples and leverage. Read every element of an offer, not just the headline multiple.
Private equity or a strategic buyer?
| Private equity | Strategic buyer | |
|---|---|---|
| Who they are | Investment firms and family offices | Companies in your industry or a related one |
| Why they buy | To grow the business and sell it later | To add products, customers or capabilities |
| Your role | Often asked to stay and help grow it | May be integrated into a larger organization |
| Equity | Rollover equity is common | Usually a full cash sale |
| Your team and brand | Often kept and built on | May change as the business is combined |
Neither is better in general. The right buyer depends on what you want for yourself, your team and the business.
The risks owners mention most
Owners who regret a private equity sale usually point to things they could have understood beforehand:
- Less control. Major decisions move to a board, and the plan follows the fund’s timetable.
- More reporting. Monthly reporting, KPIs and budgets can be a big change for a founder-led business.
- Pace of change. Growth plans, acquisitions and new hires can change the culture.
- Rollover uncertainty. Equity you keep is only worth what the next sale achieves.
- Your own role. Staying on as an employee after years as the owner can be harder than expected.
None of these is a reason not to sell to private equity. They are reasons to choose the right firm and agree the terms carefully.
Questions to ask a private equity buyer
- How long do you usually hold an investment, and how have past exits gone?
- What would you change in the first year?
- What role do you see for me, and for how long?
- How much rollover equity do you expect, and on what terms?
- Can I speak to owners who sold to you before?
- How is the deal financed, and how certain is your funding?
How Casspium fits
Casspium works for private equity firms, family offices and corporate buyers who have defined what they want to acquire. If your business fits a mandate, we introduce you confidentially - nothing identifying is shared until a buyer has signed an NDA, and you decide who you speak to. Buyers pay our fee, so you pay nothing. See how we work with owners or estimate what your business could be worth.
Thinking about a sale?
Casspium introduces owners of established private companies to private equity firms, family offices and corporate buyers. Buyers pay our fee, so a confidential conversation costs you nothing.