A private equity firm calls your cell. A managing director, well-dressed voice, opens with flattery. He says your business is exactly what his fund is looking for. He asks if you're "open to a conversation." You say yes — because who wouldn't? — and three months later you're sitting across a conference table wondering how you ended up with a letter of intent that looks nothing like what you imagined.
This happens. Constantly. To smart, experienced owners who built real companies. Not because they were naive. Because PE moves through a process it has run hundreds of times, and most owners are doing it for the first time.
You don't have to be the cautionary tale. But you do have to understand the game before you sit down to play it.
They Already Know Your Numbers. Do You Know Theirs?
By the time a PE firm contacts you, they've already pulled your SIC code data, your credit profile, your industry comps, and any public information attached to your business. They know your approximate revenue, your margin profile for your sector, and what a company like yours traded for in the last 24 months.
They have a target entry multiple. They have a thesis. They know what they want to pay before you say a word.
What most owners don't know: what that fund's return requirement is, how much dry powder they're deploying, how far into their fund cycle they are, and whether you're their ideal platform or a bolt-on they'll flip in 18 months. Those details change everything about how you negotiate — and whether you should.
EBITDA Is the Scoreboard, and Most Owners Are Reading It Wrong
PE firms buy on EBITDA multiples. You probably know that. What you may not know is that your EBITDA — the one your accountant produces — is almost certainly not the number a PE firm will use to value your business.
They will recast it. They'll add back one-time expenses, remove personal perks run through the business, normalize your comp to market rate, and strip out non-recurring revenue. That process is called quality of earnings, and it runs $30,000 to $80,000 before a deal closes. The buyer pays for it. Which means the buyer owns the output.
Owners who run a sell-side QoE first — before going to market — control that narrative. They find the problems before the buyer does. They correct what's correctable. They document what's defensible. The difference in final deal value between an owner who did this and one who didn't can be 0.5x to 1.5x EBITDA. On a $3M EBITDA business at an 8x multiple, that's $4M to $12M. Real money. Gone — or kept — based on one decision made before the process starts.
The LOI Is Not the Deal. It's the Beginning of the Leverage Shift.
Most owners treat the letter of intent like a finish line. It isn't. It's a starting gun — fired at the moment you've agreed to exclusivity with one buyer, handed over your books, and given up your leverage.
After LOI, the buyer runs full due diligence. That's 60 to 90 days of lawyers, accountants, and consultants living inside your business. Every gap they find becomes a chip. Earnout provisions appear. Escrow holdbacks grow. The purchase price adjustments multiply. Sellers who don't understand this dynamic walk into it open-handed.
The counter-move is preparation. Document every customer contract. Resolve every open legal matter. Clean up any IP ownership questions. Know your customer concentration before they do — and have an answer ready for it. If your top three clients represent 60% of revenue, that's not a fatal flaw, but you need a story around retention and pipeline before the question lands, not after.
Rollover Equity Sounds Like a Gift. Read the Fine Print.
PE deals almost always include a rollover equity component — you keep 20% to 40% of the new entity, the theory being that you'll earn a second bite of the apple when the firm exits in three to five years. The pitch is compelling. On paper, the math works.
In practice, the value of that rollover depends entirely on the new company's capital structure, the preference stack above you, and the exit multiple achieved. If the deal is loaded with debt — which PE deals almost always are — and the exit is at a lower multiple than projected, your rollover can return very little. Founders have walked away from a $20M rollover with $800K after the waterfall ran dry.
Ask for the cap table before you agree to rollover terms. Understand where you sit in the preference stack. Know what the minimum exit value needs to be for your rollover to generate meaningful proceeds. If the answers aren't clear, that's your answer.
Management Agreements and Non-Competes Will Define Your Next Decade
Most sale agreements include a management agreement — a post-close arrangement where you stay on, often for two to three years, to run the business for your new PE owner. This is often presented as continuity. It is also a control transfer.
You will have a boss. You will have KPIs set by people who've never run your kind of business. You will watch decisions get made that you would never make. Some founders thrive in this structure. Others find it suffocating inside six months. Know which one you are before you sign.
The non-compete is equally consequential. A five-year, nationwide non-compete in your industry means exactly what it says. If the earnout conditions aren't met, if the rollover disappoints, if the management relationship deteriorates — you still can't compete for five years. Negotiate scope, geography, and duration before the LOI. After the LOI, your leverage to move those terms is nearly zero.
The Right Buyer Is Not the Highest Bidder
In a competitive process, the highest bid often belongs to the buyer with the most aggressive assumptions about your business's future performance. That buyer will also have the most aggressive earnout structure, the most aggressive reps and warranties requirements, and the most aggressive management expectations.
The second-highest bid from a buyer who understands your industry, has a track record with similar founders, and offers clean deal terms with a fair rollover structure may be worth $2M to $3M more in actual realized proceeds than the headline number suggests.
Process design — who you approach, in what sequence, and how you position the business — determines who shows up at the table. That's not something that happens to you. It's something you architect. A good sell-side advisor's job is to create competition without creating chaos, and to qualify buyers on terms and fit, not just on price.
Bottom Line
Private equity isn't your enemy. But it's not your advocate either. It's a disciplined, well-resourced financial buyer executing a strategy it has refined across hundreds of transactions. You get one shot at this. One.
The owners who walk away with the outcomes they imagined — real liquidity, a fair rollover, a workable transition, and terms they can live with — are the ones who prepared before the phone rang. They ran a sell-side QoE. They resolved their operational vulnerabilities. They understood their own EBITDA story. They came to the table knowing what the buyer knew.
That preparation doesn't happen in a weekend. It takes 12 to 24 months done properly. If you're five years out, you're right on time. If you're already in conversation with a buyer, every week matters.
If you want to know exactly where you stand — what your business is worth today, what's dragging that number down, and what a PE buyer will find when they open the hood — start here. The conversation is confidential and costs you nothing. The preparation it triggers could be worth more than you think.
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