Sell My Business to Private Equity: Should I Sell My Business to a Private Equity Firm, and What Will They Pay?

Private equity will typically pay 4x to 6x adjusted EBITDA if they are buying you as an add-on to a company they already own, and 6x to 9x if you are large enough to be the platform they build on. They will usually ask you to roll 10 to 30 percent of your proceeds back into the new company and to stay for three to five years. Whether the deal is good for you depends almost entirely on which of those two things you are, and most owners find out too late.

The inquiry usually arrives the same way. An associate at a firm you have never heard of emails to say they are building a platform in your industry, they admire what you have built, and would you take a fifteen minute call. It is flattering, it is not spam, and it is also the opening move of a process that is far better understood by the person on the other end of it than by you. This is what is actually happening on their side of the table.

Should I sell my business to private equity?

Sell to private equity if you want to take significant money off the table now, still believe in the next five years of growth, and are willing to run the company for someone else while you own a minority of it. Do not sell to private equity if you want to be finished, because almost every sponsor deal requires you to stay.

That is the honest short version, and it separates owners cleanly. A sponsor is not buying a retirement. They are buying an operating asset plus, in most cases, the operator. If your goal is to hand over the keys and go, an individual buyer or a regional strategic is usually a better fit and sometimes a better net price once you account for what a rollover ties up.

If instead you are fifty-two, you have taken all the risk personally for twenty years, and the business is finally big enough to be interesting to institutional money, a sponsor deal can do something no other buyer can: convert most of your net worth to cash while leaving you exposed to the upside you still believe in. That is a real and legitimate reason to do it.

Platform or add-on: the distinction that decides your price

A platform is the first company a sponsor buys in an industry and the one they build everything else onto, and it commands 6x to 9x adjusted EBITDA. An add-on is a company bolted onto an existing platform, and it commands 4x to 6x. The same business gets two different prices depending on which role it plays.

Platforms generally need $5 million to $10 million of EBITDA at entry, along with a management team that can absorb acquisitions. Below that, you are an add-on, and pricing yourself as a platform is the fastest way to waste six months.

Sources: 2026 roll-up reporting from CT Acquisitions and rollover equity guidance from M&A advisory firms. Bands are market benchmarks, not quotes on your company.

What multiple does private equity pay for a small business?

Between 4x and 9x adjusted EBITDA in most lower middle market deals, with the exact figure driven by size, recurring revenue, and whether you are the platform or an add-on. The number that matters is not the multiple on its own but the multiple applied to the right earnings figure, and that is where most owners lose money without noticing.

Sponsors buy adjusted EBITDA, not the profit on your tax return. That means a market-rate salary for whoever does your job comes out, and it means your legitimate add-backs go in. The gap between those two numbers on a $2 million revenue company is routinely $200,000, which at 5x is a million dollars of purchase price. Owners who have not documented their add-backs before the first call do not get to argue for them later, because by then a quality of earnings firm has already written its report. Our guide to the quality of earnings report covers what that process actually examines.

The other thing worth understanding is where the sponsor return comes from. They buy the platform at 6x to 9x, bolt on 10 to 50 smaller companies at 4x to 6x, and exit the combined business at 8x to 12x three to seven years later. Part of the return is real operating improvement. Part of it is arbitrage: the same earnings are simply worth more inside a $50 million EBITDA company than inside a $3 million one. That is not a trick, it is the model, and rollover equity is the mechanism by which you get to participate in it rather than just supply it.

What is rollover equity, and is the second bite real?

Rollover equity is the portion of your proceeds you reinvest into the buyer's new holding company instead of taking as cash, typically 10 to 30 percent. If the sponsor grows the platform and exits at a higher multiple, that retained stake can be worth more than your original sale, which is what advisors mean by the second bite of the apple.

The typical structure: you sell 60 to 80 percent of the company, roll the remaining 20 to 40 percent into the new capital structure, and sign an employment agreement to stay on as CEO or executive chairman. For add-on deals the rollover is often required rather than offered.

The second bite is genuinely real, and for owners who backed the right sponsor in a consolidating industry it has occasionally been worth several times the first bite. It is also the part of the deal with the least protection, and the risks deserve stating plainly:

• You become a minority holder with no control. The sponsor decides when to sell, at what price, and whether to take on more debt along the way. Drag-along provisions mean you go where they go.
• Your stake sits behind leverage. Roll-ups are financed with debt. If the platform underperforms, the debt gets paid first and common equity is what absorbs the damage.
• Future acquisitions can dilute you unless your documents say otherwise. Read the pre-emptive rights and anti-dilution language, not the summary deck.
• It is illiquid for years. You cannot sell it, borrow easily against it, or set a date on it. Treat rolled equity as money you might never see, and size it so the cash portion alone still meets your goal.

The practical test is simple. If the deal only works for you assuming the second bite pays off, it is not a good enough deal. If the cash at close on its own gets you where you need to be, and the rollover is upside you can afford to lose, you are negotiating from the right position.

What actually changes after private equity buys your company

More than owners expect, and mostly in the first year. Monthly reporting on a board calendar replaces whatever cadence you had. A budget you defend replaces the one you kept in your head. There is usually acquisition debt on the balance sheet that did not exist before, which makes cash management stricter even when the business is doing well. Your compensation gets set by a committee. And there is now a clock: the sponsor has a fund life and needs an exit inside roughly three to seven years, so every decision is measured against that horizon rather than against a twenty-year one.

Some of this is genuinely valuable. Most founder-run companies do get better systems, better pricing discipline, and better financial visibility under sponsor ownership. But it is a different job than the one you had, and owners who assumed they were selling and staying on as themselves are the ones who leave unhappy at month fourteen.

When private equity is the wrong buyer

Four situations where the answer is usually no, or at least not yet:

You want out completely. Sponsors buy operators. If you want a clean exit, a strategic buyer or a well-financed individual buyer will get you there faster and with fewer strings, and you keep 100 percent of the proceeds in cash.

Your EBITDA is under about $1 million. You will be priced as a small add-on, at the bottom of the add-on band, by a buyer with far more deal experience than you. At that size a regional competitor often pays more, because they are buying your customers and can pay for the synergies rather than just the earnings.

Your revenue is project-based and cyclical. Sponsors pay for forecastable cash flow. A business that has to resell its entire book every year gets a lower multiple from every institutional buyer, which is why so much of the 2026 roll-up activity concentrates in recurring service industries: HVAC, plumbing, roofing, pest control, dental, veterinary, auto repair, IT services, accounting, and commercial landscaping.

You have serious customer concentration. If one customer is more than 20 percent of revenue, expect either a discount, a large earnout tied to that customer staying, or both. Fixing concentration takes years, and it is worth more than any negotiating tactic.

How to prepare before you answer a private equity inquiry

Know your own number before the first call, clean up your earnings, and get your contracts in order. Owners who walk into a sponsor conversation without an independent view of value negotiate against the buyer's number by default.

1. Establish your range independently. Run an EBITDA multiple estimate against comparable sales in your industry before anyone quotes you anything. If you are in a roll-up sector, the industry pages are the fastest starting point, for example a landscaping business valuation or an HVAC company valuation.
2. Document your add-backs now. Every discretionary expense you want counted needs a paper trail from before the process started. Retroactive add-backs get struck.
3. Make your contracts assignable and readable. Diligence teams will pull every customer agreement, equipment lease, and property lease you have. Getting ahead of that, including having someone turn each lease into a plain summary of terms, renewals, and assignment clauses, removes the single most common source of late-stage retrades.
4. Hire your own advisor. The sponsor has a team that does this every week. Understand what a broker or M&A advisor costs and hire one anyway, because a competitive process is worth far more than the fee on a deal of this size.
5. Read the letter of intent as a real document. The letter of intent sets the exclusivity period and the working capital peg, and both of those move money. So does any earnout structure, which is where a headline multiple quietly becomes a smaller one.

How much of my business does private equity buy?

Usually 60 to 80 percent, with the owner retaining 20 to 40 percent as rollover equity. Full 100 percent buyouts do happen, most often with add-ons where the sponsor already has management in place and does not need the seller. Minority recapitalizations, where the sponsor buys less than half and you keep control, exist but are rarer in the lower middle market and generally come with tighter governance rights than the ownership percentage suggests.

Do I have to stay after private equity buys my company?

In most cases yes, for one to three years on an add-on and three to seven years on a platform, under a written employment agreement. The length is negotiable and it is one of the more winnable points in a deal, particularly if you can present a general manager who already runs day-to-day operations. That is one more reason to install a real second in command a year or two before you start a process. It raises the multiple and shortens your commitment at the same time.

Before you take any of these conversations, get an independent read on what your company is actually worth. Enter your revenue, earnings, and growth above and you will get an estimated range from three methods, benchmarked to comparable sales, with the drivers that move it spelled out. It is an educational estimate rather than a certified appraisal, but it is the difference between negotiating from your number and negotiating from theirs.