I have sat on both sides of the PE table. I have run PE-backed companies and I have evaluated dozens of acquisition targets. Here is what buyers actually care about.
The Obvious Metrics
EBITDA, revenue growth, gross margin, customer retention. These are table stakes. If the numbers are not there, the conversation does not start.
The Hidden Evaluators
Beyond the financials, PE firms evaluate three things that most sellers underestimate.
Management independence: Can the business operate without the founder or CEO? If the answer is unclear, the buyer sees risk. Risk reduces your multiple.
Customer concentration: If your top three customers represent more than 30% of revenue, that is a red flag. One lost contract kills the thesis.
Operational scalability: Can this business grow without proportional increases in headcount and complexity? Buyers want a platform, not a lifestyle business.
The Deal Killers
Single-person dependency is the number one deal killer in middle market M&A. I have seen companies with strong EBITDA get discounted 2 to 3 turns because the business clearly could not function without the owner.
Undocumented processes are number two. If your operations live in people’s heads, the buyer is acquiring tribal knowledge that walks out the door.
How to Prepare
Start 12 to 24 months before you want to sell. Install an operating system. Document your processes. Diversify customer relationships. Build a leadership team that can present to the buyer without you in the room.
The companies that command 8x to 10x multiples are not necessarily the biggest. They are the ones with the best systems.
Book a strategy call at the8020institute.com to find the right program for your company.