Most entrepreneurs sit down with a fund thinking they are selling their company. In reality they are about to sign a new company — with themselves still inside. Grasping this reverses the way you negotiate: with a private equity fund you don’t close a door, you open a second one, and that is almost always where the bigger value is created when Selling your company.
In short: you hand over control but keep a stake (reinvestment) and a role, to grow together and sell on at a higher value in 4-6 years. The price is built on a multiple of EBITDA, often with leverage; the outcome depends on how you set structure, reinvestment and the competitive process — not just on how much you are offered.
This approach is crucial when considering Selling your company to maximize its value.
Understanding this dynamic is essential for anyone considering Selling your company effectively.
What a fund really looks for
A fund doesn’t buy a company: it buys a 4-6 year value-creation plan. So it focuses on:
- Stable, predictable cash flows and solid margins (normalised EBITDA is the metric).
- Credible growth potential: new markets, products, acquisitions (build-up).
- A defensible position: market share, brand, barriers to entry.
- A management team able to stay and execute: the fund invests in people, not just numbers.
- A sector with a consolidation rationale, where the company becomes a platform to grow through acquisitions.
The mid-market is the core of demand: typically companies with EBITDA from €1.5-2 million upwards, with most interest between €3 and €15 million.
The forms the deal can take
- Majority buyout: the fund takes control; the founder often reinvests a minority.
- Minority (growth capital): the fund enters to finance growth; you keep control.
- Leveraged Buyout (LBO): acquisition financed partly with debt, on the cash flows.
- Buy-and-build: your company becomes the vehicle to acquire other operators.
Deal structure: this is where you win or lose
The price starts from the Enterprise Value (a multiple of EBITDA), minus net financial debt, equals the Equity Value — what you receive. But the headline number says little. What counts is underneath:
- Leverage (debt): raises the fund’s return and the discipline required of the company.
- Reinvestment (rollover): you are often asked to put back 10-30% into the new holding. It isn’t a cost: it is your ticket to the “second bite” of value.
- Locked-box or completion accounts: they decide who keeps the cash generated up to closing. A detail worth percentage points.
- Earn-out and vendor loan: part of the price deferred or tied to results. See how earn-out works.
- MIP and ratchet: how management — you included — is rewarded at exit.
The lesson many learn too late: how much you cash in now and how much you stay exposed are negotiable levers. They are decided up front, cold — not in the heat of negotiation.
Fund or industrial buyer? The honest comparison
| Private equity fund | Industrial buyer | |
|---|---|---|
| Price | Competitive (multiple + leverage) | Often higher (pays for synergies) |
| Your role | You stay as shareholder-manager | You exit after handover |
| Autonomy | High (stand-alone company) | Integration into the group |
| Second payout | Yes (reinvested stake at exit) | No |
| Horizon | Exit in 4-6 years | Permanent |
There is no right choice in the abstract: there is the one right for your objectives. Which is exactly why a competitive process, putting funds and industrial buyers in the same room, almost always improves price and terms.
The mistakes I most often see cost dearly
- Negotiating with a single party. Without competition you hand the leverage to the other side.
- Non-normalised accounts. An “adjusted” but undocumented EBITDA becomes a discount in due diligence.
- Founder dependence. If the company is you, the fund prices in the risk of your departure.
- Arriving unprepared. Equity story, data room and second layer are built 12-24 months ahead.
- Looking only at the headline price. What counts is the effective one: structure, reinvestment, earn-out.
How to prepare the company
A credible equity story, normalised and documented accounts, reduced owner dependence, an orderly data room, a realistic valuation. First understand how much your company is worth and the methods used to calculate value; if you don’t know where to start, here is who to turn to.
A representative case
Composite case built on real transactions; the orders of magnitude reflect public market data (mid-market EV/EBITDA multiples; the prevalence of buy-and-build strategies in Italian private equity). Sector, size and figures are changed for confidentiality.
Industrial components, Northern Italy, revenues ~€40m, EBITDA ~€7m. The founder wanted to monetise thirty years of work without switching off growth. The easy route was selling 100% to a competitor: full cheque, brand absorbed, him out within a year. We did the opposite: a mid-market fund entering with a majority at about 7x EBITDA, with the founder reinvesting 20%.
Over five years, three targeted acquisitions (build-up) took EBITDA from 7 to ~15 million. At exit to an international group, value had more than doubled: that reinvested 20%, on its own, was worth more than he would have received selling everything at the start. Liquidity now plus a second round he could never have financed alone. That is the structural advantage of a fund, when the deal is built well.
In conclusion
Selling to a fund is a deal where the “how” matters as much as the “how much”. Structure, reinvestment and role are set up front, within a competitive process: that is what separates a good exit from a missed opportunity. If you are weighing this path, let’s talk — a confidential conversation, no commitment.
Frequently asked questions
How do you sell a company to a private equity fund?
You prepare the company (equity story, normalised accounts, data room), run a competitive process across several funds, collect non-binding offers, manage due diligence and negotiate the structure (price, leverage, reinvestment, governance) through to closing. The M&A advisor runs the process.
Is it better to sell to a fund or a competitor?
It depends on your objectives. The industrial buyer often pays more for synergies but aims at integration; the fund values management and growth and leaves you a role. Competition between the two is what truly maximises the outcome.
Does the founder have to reinvest?
Often yes, a minority (10-30%). It aligns interests and lets you share in the second round of value, up to the fund’s exit.
How long does a fund hold the company?
Typically 4-6 years, then it sells on to another fund, an industrial buyer or via an IPO. Your reinvested stake appreciates in that exit too.
Do I lose control by selling to a fund?
In a majority buyout, yes, but you stay a shareholder-manager with a defined role and governance. With a minority (growth capital) investment, you keep control.
