Last updated: 2026-06-18

Selling to a Private Equity Buyer

Private equity is the most common institutional buyer of lower-middle-market businesses in 2026. PE firms acquired more than 4,800 sub-$50M EBITDA businesses in the U.S. last year, with home services, healthcare services, and B2B services dominating activity. If your business has $1M+ of EBITDA and clean financials, a PE buyer is statistically the most likely acquirer you’ll meet.

What Is a PE Buyer?

A private equity firm raises capital from institutional investors (pension funds, endowments, family offices, sovereign wealth funds), pools it into a fund, and uses that capital plus borrowed money (leverage) to acquire businesses. They hold each business for 3 to 7 years, grow it through operational improvements and add-on acquisitions, then sell it to a larger buyer or take it public. The PE firm collects management fees plus a 20 percent share of investment profits.

For sellers, the practical takeaway: a PE buyer is buying your business to sell it again at a higher price in 3 to 7 years. That shapes everything about how they value, structure, and negotiate.

How PE Buyers Value Businesses

PE firms use EBITDA multiples as the primary valuation method. The multiple they’ll pay depends on:

Industry. Home services HVAC platforms trade at 8 to 12x. Plumbing add-ons trade at 5 to 7x. Specialty B2B services range 6 to 10x. Distressed or thin-margin businesses 3 to 5x.
Size. $1M EBITDA businesses get lower multiples (4 to 6x) than $10M EBITDA businesses (8 to 11x). PE pays a “size premium” for scale.
Growth rate. 20%+ organic growth adds 1 to 2x to the multiple. Flat or declining growth subtracts.
Recurring revenue. Service contracts, maintenance agreements, and subscriptions earn 1 to 2x premium over project-based revenue.
Customer concentration. Top customer over 20% triggers discounts. See our customer concentration explainer.
Owner dependence. Businesses that can’t run without the founder get 0.5 to 1.5x discount.

Platform vs. Add-On Deals

PE firms buy businesses in two shapes:

Platform acquisitions. The first investment in a vertical. The PE firm builds infrastructure (CFO, operations team, technology, brand) on top of the platform. Platform businesses usually have $5M+ of EBITDA and pay the highest multiples (8 to 12x in home services, higher in tech-enabled services).
Add-on acquisitions. Subsequent acquisitions that bolt into an existing platform. Add-ons trade at lower standalone multiples (4 to 7x) but the combined business creates “multiple arbitrage” for the PE firm (they paid 5x, the rolled-up entity is worth 10x).

If you have $1M to $5M of EBITDA in a consolidating vertical (home services, healthcare services, IT services), you’re almost certainly an add-on candidate. The platform PE firm pays a fair add-on multiple and gets the multiple arbitrage on the other side.

Deal Structure: What a PE Offer Looks Like

A typical PE offer for a sub-$10M EBITDA business looks like:

70 to 90% cash at close. Wired to the seller on the closing date.
10 to 20% rollover equity. Seller keeps a minority equity stake in the post-close business. This rolls into the PE firm’s next exit (the “second bite”).
0 to 15% earn-out or seller note. Deferred consideration paid over 1 to 3 years, often contingent on performance.
Working capital adjustment. See our working capital explainer.
R&W insurance. Buyer typically buys representations & warranties insurance, capping seller liability at 1 to 2% of deal value.

The Second Bite

The biggest difference between a PE buyer and a strategic buyer is the second bite. PE firms grow the business and sell it again in 3 to 7 years, typically at a higher multiple than they paid. Sellers who roll 10 to 20% equity often see that rolled equity double or triple at the second exit. Real example: a $5M EBITDA HVAC business sells to PE at 8x ($40M), seller rolls 15% ($6M of value). PE grows it to $15M EBITDA, sells at 10x ($150M), seller’s rolled 15% is now $22.5M. That’s a 3.75x return on the rolled stake.

The second bite is the single biggest reason to consider a PE buyer over a strategic. It’s also why sellers should negotiate hard on the rollover equity terms, not just the headline price.

What PE Buyers Look For

PE firms are selective. The ones we work with on the buy side filter on:

Clean financials (audited or reviewed, 3+ years of trailing data)
$1M+ of EBITDA (for add-ons), $5M+ for platforms
Recurring revenue or sticky customer relationships
Diversified customer base (top customer under 20% of revenue)
Defensible market position (regional density, specialty capability, regulatory moat)
A management team that can run the business without the founder, or a founder willing to stay 1 to 3 years through transition

What PE Buyers Won’t Buy

Businesses below $750K of EBITDA (unless tucking into an existing platform)
Declining revenue businesses with no clear turnaround thesis
Highly concentrated customer bases (top customer over 40%)
Owner-operator businesses where the founder is the entire sales pipeline
Asset-heavy businesses with weak underlying cash flow

Who PE Buyers Compete With

For lower-middle-market deals, PE firms typically compete with:

Strategic acquirers (other operators in your space) — usually pay 10 to 30% more than PE for businesses with operational synergies
Search funders — individual buyers raising committed capital from investors; often more flexible on structure
Family offices — patient capital, often willing to hold longer than PE, sometimes pay more for fit
Independent sponsors / holdcos — smaller PE-style buyers without committed funds; deal-by-deal capital

How CT Acquisitions Works With PE Buyers

We run mandate-matched introductions to a vetted network of PE buyers across home services, B2B services, healthcare services, and specialty manufacturing. We do not run auctions. When a deal in our pipeline matches a partner’s mandate, we make a sequential introduction. The buy-side fee is a flat 2% of EV at close.

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Different buyer types pay differently and value differently. A short conversation gives you a real read on which buyer type fits your business best.

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