Selling to Private Equity Firms: How to Increase Your Chances of an Ideal Exit

A private equity firm is a type of investment firm that raises capital from investors, such as pension funds, endowments, wealthy individuals, or institutional investors, and uses that capital to invest in private companies with the goal of making a return on that investment. For small to midsize businesses, this usually entails acquiring the majority of the business, scaling up operations, and reducing costs, often with the goal of reselling the business down the line. As a result, these firms look for specific indicators that suggest an acquisition is likely to return a good investment.

Selling to a private equity firm (PE firm) can be a good strategy if you’re looking for:

• Certainty and speed in closing a deal. PE firms typically invest from committed funds and have extensive deal experience, which means they can move quickly and close with fewer delays or surprises.

• Buyers who will be good temporary stewards for your business. PE firms generally keep your business intact, retaining your team, brand, and operations, while investing in systems and infrastructure to support future growth. However, if long-term stewardship matters to you,  note that these firms focus on profit growth and usually plan to resell the business within 3-7 years, making their stewardship short-term.

• Maintain a minority stake in your business until you’re ready to fully retire. Sometimes, business owners will want to sell to a PE firm and maintain a minority ownership. Then later on, when a PE firm resells your business, you’ll see another payday as you relinquish your share. This is known as “taking the second bite of the apple” in mergers and acquisitions, and it’s a solid strategy for increasing your sale price. As PE firms work with you to increase your company’s value and help it see new levels of growth, they can resell your business for a higher price than you likely could have achieved on your own.

At Axial, we’ve been working with business owners and buyers, like private equity firms, for the past 14+ years. This gives us unique and extensive insight into what motivates a PE firm to acquire companies and how you, as a business owner, can increase the chances of securing your exit with them.

In this post, we look at:

• What motivates private equity firms to acquire a business
• The pros and cons of selling to private equity firms
• How to increase your chances of securing your ideal exit

A key part of selling your business to a PE firm is targeting enough qualified buyers to increase your chance of finding the ideal exit partner. Business owners struggle to do this on their own, as they don’t have the relevant network or previous deal experience. By working with an M&A advisor, you can significantly increase your buyer coverage and get a trusted partner to help you navigate the M&A process. Learn about hiring an M&A advisor here.

What Motivates Private Equity Firms to Acquire a Business

Private equity firms are often beholden to limited partners (LPs) and the return profiles they dictate. As a result, PE firms actively seek out businesses with strong growth potential and a clear path to value creation. Their goal is to deliver attractive returns — usually by reselling the company or taking it public — within a typical investment horizon of 3 to 7 years.

This means a PE firm generally values:

• Recurring revenue: Recurring revenue reflects customer loyalty and long-term demand. PE firms love this because it reduces risk.
• Strong margins: High profit margins (especially EBITDA) signal operational efficiency and predictable income. This makes it easier to plan operational improvements, service the debt used to acquire the company, and model future returns with confidence.
• Low customer concentration: When no single customer makes up too much revenue, the business is more resilient. Diversification lowers risk, making your company more attractive to the PE firm. As a rule of thumb, PE firms try to avoid businesses where more than 10% of their revenue comes from one client, or more than 25% from their top five clients.
• Recession resilience: Businesses that perform well even in downturns, like healthcare or essential services, are safer bets. PE firms value this stability, especially in uncertain market environments.
• Low CapEx needs: Businesses that don’t require major investments in equipment or infrastructure are more flexible and capital efficient, boosting returns for PE firms.
• Low working capital needs: Firms that don’t tie up cash in inventory or receivables generate more free cash flow. That’s a key metric for PE investors focused on efficiency and ROI.
• Demonstrated growth potential: A track record of growth with a clear path to continue scaling signals upside. PE firms want to invest in businesses they can help grow, then exit at a higher multiple.

A key part of selling to a PE firm is crafting a narrative around your business in a way that appeals to a PE firm. For example, if your company operates in a fragmented industry, you can demonstrate growth potential by highlighting the opportunity for future bolt-on acquisitions. These are smaller businesses that a PE firm could potentially acquire and integrate with yours to drive scale, improve efficiencies, and expand market presence. Showing that your business is well-positioned as a platform for consolidation can significantly increase its appeal to a PE buyer.

M&A advisors are great at crafting this narrative around your business and demonstrating to qualified investors how your business has potential for growth. At Axial, we leverage our network of 2,000+ M&A advisors to curate a list of 3-5 best fits that have the right experience to represent your business.

Click here to request a free exit consultation and receive your curated list.

Pros and Cons of Selling to Private Equity Firms

The Pros of Selling to Private Equity Firms

Certainty and Speed in Closing a Deal

Private equity firms typically invest from committed funds, giving them the ability to move quickly and decisively. When a PE firm is serious about acquiring your business, you’re dealing with a buyer that has both the resources and experience to close, without needing to secure financing after the fact.

As professional acquirers, they know how to run efficient, well-managed deal processes that keep things moving forward. For business owners, this can translate into a smoother, more predictable transaction process, with fewer delays or surprises. That level of certainty is especially valuable if you’re looking for an exit on a defined timeline.

Potentially Good Stewards for Your Business If You Intend to Step Away

If you’re planning to fully exit your business, it’s important to know that the buyer will continue to treat it — and your people — with care.

Many private equity firms aim to grow a business rather than absorb it, which means they’re often motivated to preserve your brand, team, and operations. This is especially true when compared to a strategic buyer, who is often buying a business to fully absorb it and grow their own company.

While the level of stewardship varies by firm, many PE buyers approach ownership with a growth mindset: investing in the business’s future rather than disrupting it. That often includes upgrading systems, improving reporting, and strengthening infrastructure to open the door for growth, ensuring your company continues to scale, even after you’ve stepped away.

If leaving a strong legacy matters to you, a thoughtfully chosen PE partner can help ensure the business continues to thrive without you. An experienced M&A advisor can keep this priority front and center, helping you identify buyers who align with your values and vision for the company’s future.

Experienced Partners If You Intend to Maintain Minority Ownership

Private equity firms don’t just bring capital — they bring experience. Many focus on specific industries and have proven playbooks for driving growth. As a business owner, this can be a huge asset. You’ll gain a partner who understands your space, helps you avoid common scaling mistakes, and works alongside you to grow the company’s value. That often includes efforts like bringing in seasoned leadership, such as a CFO, and uncovering new growth opportunities through market expansion or strategic acquisitions.

If you’re planning to stay involved post-sale, it can feel more like a partnership than a handoff. And if you retain a minority stake, you’ll have the opportunity to benefit from a second, often larger, payout when the firm eventually exits the business.

The Cons of Selling to Private Equity Firms

Complex Deal Structure with Potentially Lower Offers

Generally, PE firms will make a lower offer on your business compared to offers you’ll get from a strategic buyer, like a competitor who wants to buy your business to attain its intellectual property. But this is by no means a universal rule, and there are reasons behind whether you’ll receive a lower or higher offer from a PE firm.

When making their offer, a PE firm is going to:

• Factor in their required return on investment.
• Consider the debt they’re taking on to finance their investment.

If there’s a valuation misalignment between what you think your business value is and what the PE firm thinks it is, they may use earnouts to bridge the gap between the two valuations. This is where you’ll receive a smaller upfront payout, based on their valuation, and then earnouts post-sale if specific agreed-upon benchmarks are met.

For example, if your business has several long-term contracts that are coming up for renewal right after the sale, setting up an earnout protects downside for the PE firms in case those contracts aren’t renewed. It also gives an upside to the owner if they have a strong conviction that those contracts will be renewed.

This is where the deals can get complicated and multi-faceted. Your M&A advisor can help in several ways, including:

• Conducting an accurate valuation and being able to speak to your business valuation. Advisors will use several methods and their past deal experience to arrive at the most accurate valuation for your company. They can speak to this valuation with authority and reduce the chance of a valuation misalignment between you and your target buyer.
• Advising you on the risks associated with earnouts. An experienced advisor will understand your business and know your industry. They can speak more confidently on whether or not the proposed earnouts and corresponding benchmarks are achievable.
• Put in protective provisions in the agreement. Your advisor can make sure the buyer cannot easily undermine the earnout terms. This can include non-interference clauses around key parts of your business that, if impacted, could affect your earnout.

Potential Cultural Shift for Your Business Operations

Private equity firms often make operational changes aimed at improving efficiency, reducing costs, and accelerating growth. While these shifts can benefit the business financially, they may also introduce a different pace, structure, or leadership style — resulting in a noticeable change in company culture.

If you’ve run your business like a family or lifestyle operation, the transition to PE ownership can sometimes feel more corporate, metrics-driven, or financially rigid. You can also expect a strong focus on KPIs, EBITDA growth, and margin expansion, which can create a more intense and performance-driven environment. In some cases, PE firms may also bring in outside executives or restructure teams, which can affect internal dynamics and employee morale.

To help ensure alignment, it’s worth exploring the cultural fit between your company and the PE firm during the diligence process.

Short Term Ownership

Unlike long-term buyers like family offices or holding companies, PE firms operate with a defined investment timeline. As mentioned above, their goal is to enhance value and eventually sell the company, either to another buyer or through a public offering.

While many PE firms take great care in growing and supporting the business during their ownership, their short-term hold period may not align if your priority is long-term continuity for your team, culture, or customer relationships. If long-term stability is your top concern, it’s important to weigh this aspect carefully when evaluating buyers.

How to Increase Your Chances of Securing Your Ideal Exit (And Determine if a PE Firm Is the Right Buyer Type for You)

First, keep in mind what motivates a private equity firm to invest. If you don’t have scalable operations or can’t demonstrate how your business can grow and return an investment under their tutelage, then you’re not presenting a compelling story to PE firms.

As part of securing your ideal exit, you want to:

1. Define your exit goals. This means understanding the sale price you want from your exit, your ideal exit timeline, and what stewardship means for you.
2. Increase your buyer coverage. The more qualified buyers you target, the more likely you’ll find the one who can deliver your ideal exit. Here is where business owners often struggle. They don’t have the network to target these qualified buyers, nor do they have the time and past deal experience to vet and qualify buyers. That’s why we recommend hiring an M&A advisor to help with your exit.

Questions to Help Define Your Ideal Exit

Your ideal exit involves achieving both personal and business goals.

To help solidify your personal goals, ask yourself questions such as:

• What sale price do you need to fund the next stage of your life? Whether you’re planning to retire or start another venture, you want a clear understanding of what you need financially from the sale of your business. If your main motivation is financial, then you’ll look for ways to get the highest sale price for your business, even at the loss of stewardship.
• How long do you want to stay on to help with the transition? Transition periods are almost always part of an exit, even for strategic acquisitions. But there are types of buyers within each category that will require less of your time as an owner. For example, if a competitor is acquiring your business, they may not need as long of a transition period since they are used to selling to the same customers and operating in the same industry.

For your business goals, ask questions like:

• Do you want to retain any ownership for you or members of your team? For example, there was a recently closed deal within the Axial network where one business owner wanted to retire, and the other owner wanted to stay involved in the business.
• Do you want your brand, legacy, or customer relationships to exist after your exit? Some business owners want their brand — their business name, their logo — to live on post-acquisition.

Knowing your goals is important to the selling process. When we surveyed investment bankers about the reasons why sales fell through, they cited a lack of exit planning and unclear goals as the main contributors. Without clear goals, it’s a) hard to target the right buyers (as your buyer profiles are informed by your exit goals) and b) hard to evaluate buyers who show interest in your business, as you’re not sure what the end goal is.

Increase Your Buyer Coverage

Business owners generally struggle to target qualified buyers because of their limited network and lack of previous deal experience.

With a limited number of buyers, you may think you’re getting the best deal when really, there are much more lucrative deals that match your exit goals.

When contemplating selling to a PE firm, it’s best to increase your buyer coverage to include different types of buyers, like family offices, competitors, and search funds. But you don’t just want to increase coverage, you also want to make sure you’re targeting qualified buyers.

This is one of the benefits of working with an M&A advisor who has extensive experience in selling businesses like yours: they have an extensive network of private equity firms (and other types of buyers) they can pitch your business to.

This is what Bob Falahee did when he wanted to sell his business, SunPro. He knew he wanted to a) fund his retirement and b) retain minority ownership for his family, who also worked as part of the management team. He came to Axial to find the right M&A advisor who could help him increase buyer coverage, navigate the M&A process, and close the deal.

After partnering with the Peakstone Group, an M&A advisor that we hand-picked for Bob and his business, SunPro was able to significantly increase its buyer pool.

Altogether, SunPro received:

• 290 signed NDAs (indicating 290 interested parties who wanted to learn more about the business)
• 60 IOIs (Indications of Interest)

From those 60, the SunPro/Peakstone team came up with a list of 12 potential buyers. Out of those 12 potential buyers, the highest bid actually came from a private equity firm, which shows that selling to a PE firm doesn’t always get you a lower offer.

Additional Benefits of Working with an M&A Advisor: A Partner for the Entire M&A Process

We looked at how an M&A advisor can help you find more buyers and increase your chances of achieving your ideal exit. But their value goes beyond buyer targeting and extends to every step of the M&A process, including:

• Determining an accurate valuation for your business. An advisor will use rigorous methods such as Discounted Cash Flow, Precedent Transactions, and Comparable Companies analysis to arrive at an accurate range that your business can sell for.
• Managing a buyer funnel. You don’t want to work with one buyer at a time; that’d take too long. It’s ideal to have 5–10 interested buyers at the table. In the example above, SunPro needed 290 NDAs and 60 IOIs to get 12 interested buyers. That means the advisor had to target a) more than 290 buyers and b) manage the buyers going in and out of the funnel. This requires a lot of parallel processing and project management, which simply takes a lot of time.

• Evaluating buyers and executing an LOI (Letter of Intent). After your advisor has screened potential buyers and vetted any IOIs they’ve submitted, they’ll help you decide on a single LOI to execute. You want to have a high conviction that this buyer is someone you’d like to close the deal with before executing an LOI. This is because LOIs come with an exclusivity agreement where you can’t engage other buyers for a set time, usually around 90 days.

• Negotiating and closing the deal. After securing a qualified buyer and executing the LOI, your advisor will continue assisting in structuring the deal and ensuring a successful close. This process can be lengthy, as the terms address key factors such as the control each party retains, the stake being transferred, and any ongoing liabilities or responsibilities post-sale.

How to Find the Best M&A Advisor for Your Business

It’s often difficult for business owners to find the right M&A advisor on their own. They either go off a word-of-mouth referral from another business owner or try to do research on their own. Plus, the advisor that worked out well for a friend may not be the right one for you, and trying to find the right advisor on Google is like finding a needle in a haystack.

At Axial, we connect you with the right advisors for your unique needs. Our network includes over 2,000 advisors, and we have extensive data on the types of deals they’ve brought to market and successfully closed. Our performance metrics provide valuable insights into each advisor’s ability to target buyers, manage buyer interest, and close deals, ensuring you hire the best advisor to achieve your ideal exit.

When you reach out to us, you’re paired with an Exit Consultant who will find out key information about your business. Then, they’ll send you a shortlist of 3–5 advisors, along with insights into each to help you make your choice.

Your Exit Consultant will also help you prepare for interviews with your shortlist of advisors. This helps ensure you ask the right questions to determine which advisor is the best fit for you.

You can request a free exit consultation today.

More Resources for Business Owners

If you’re starting your exit journey, you’ll find more resources to help you understand your options and prepare for selling your business in Axial’s Exit Planning Center.

Further reading:

• Selling a business checklist: 6 steps to sell your business
• How much can I sell my company for: Insights for business owners
• How to find a buyer for your business: 5 steps to find qualified buyers
• Small business exit strategies: Getting your ideal purchase price + overall exit