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  • Topline Valuation Group

Private Equity Buyers and Investors: An Alternative Exit Strategy

Selling a business is typically considered an owner’s ultimate exit strategy. However, there are a number of factors that need to be considered before taking this step, and perhaps the most important – money aside – is the effect a sale will have on your lifestyle.

Although playing golf every day may sound great, it’ll probably get old. As hard as it is to believe, you might even find yourself wanting to go back to work. This feeling is all too common among business owners, especially those on the younger end of the spectrum.

For owners like this, looking into private equity buyers and investors is an excellent option. They are inclined to keep owners around to support business growth in a leadership role or by incorporating them into an advisory board.

Furthermore, unlike strategic or industry buyers, private equity firms are more willing to consider alternative structures like recapitalization that provide owners with a majority of their business’ value now while allowing them to hold an investment in the new business and take part in growth.

With so much potential upside, what’s the catch?

In order to attract a private equity firm and have a successful business relationship, your business must meet the following five characteristics:

  1. Size matters – Most private equity firms are looking for larger companies where they can build a platform, unless they already have a platform and are now looking for smaller add-on transactions. If your business falls into the add-on category, you may lose some of the benefits of working with a private equity group, such as a longer transition period.

  2. Profitability – Like any business, the goal is to make money. Therefore, private equity groups are going to be more interested in companies that generate greater levels of profitability. In general, platform companies typically produce at least $3 million to $5 million in EBITDA. Although add-on companies can generate a lower EBITDA value, greater profitability – especially on a marginal basis – is still important.

  3. Sustainable growth – When asked about the future success of their business, most owners will tell a story of exponential growth for years to come, even if growth has been slow and stagnant. Although private equity firms are willing to work with owners to achieve these goals, they still need to see evidence that growth is possible by looking at an upward trend line for revenue and profitability.

  4. Low client concentration -When a business is generating a lot of money, client concentration can often be ignored. The ideal situation is for the largest client to account for no more than 20% of revenue. The last thing any new buyer wants to see is 50% of a business’ value disappear overnight with the loss of a single client.

  5. Invested management team – Having an experienced and talented management team is critical since it allows for operation scalability and alleviates issues associated with the loss of a single leader. That being said, private equity firms also want to see that a management team is willing to work with their advisory board on growth strategies. The owner should understand that he or she is no longer the only decision maker, and must be willing to hold an open dialogue with his or her partners on the successes and failures of the business.

Whether or not working with a private equity buyer is the right decision for you depends on a number of factors, but these five points should provide context for making this decision.

If you have questions about the different buyer options for your business, please feel free to contact a member of the Topline team for a confidential discussion at

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