Know your buyer.
You don't choose the deal. You choose the buyer.
Here’s something that not many business owners know, or they realise too late. The buyer determines the deal. Not the multiple, not the structure, not the terms your lawyer spends three weeks negotiating. All of that flows from who is sitting across the table and what they are actually trying to achieve. Get the buyer right and most of the other decisions get easier. Get it wrong and no amount of legal protection will save you from the consequences.
The buyer universe is larger and more varied than most people appreciate going in, and understanding it before you receive an offer changes how you evaluate what you’re being shown.
Strategics.
A strategic buyer is a company, usually in your sector or adjacent to it, acquiring for operational reasons. They want your customers, your technology, your talent, your market position, or in some cases simply to stop you taking market share they consider theirs. The financial logic behind all of those motivations is the same: your business is worth more inside their organisation than it is on its own.
When the synergies are genuinely compelling, strategics can pay more than almost any other buyer type. A business generating $5M EBITDA as an independent might be worth $8M or $9M in real EBITDA terms to a strategic that can strip duplicated costs and cross-sell immediately into your customer base. That’s not creative accounting. That’s them paying for value they can clearly see and capture, which a financial buyer cannot.
Deal structures from strategics tend to be cleaner. More cash at close, less rollover equity, shorter transition periods. They’re buying the asset and often they’ll tell you, politely but directly, that they don’t need you past six months.
Which is fine, if that’s what you want. If you want to stay involved, build something bigger, and participate in a second exit, a strategic is probably the wrong buyer. Once you’re inside their organisation you’re an employee. The entrepreneurial chapter is over, whether or not anyone says that out loud.
A bad deal with a strategic rarely starts with price. It starts post-close, when the integration priorities of a large organisation collide with what you built and why you built it. The earn-out tied to metrics you no longer control. The brand absorbed into theirs. The team restructured because someone at head office decided your function duplicates something they already have. None of that was in the term sheet, and all of it was entirely predictable if you’d spent time understanding what a strategic integration actually looks like from the inside before you signed.
Private Equity. The Full Spectrum.
Private equity is not one thing. It gets treated as a single category when it’s actually a spectrum that runs from Blackstone managing over a trillion dollars in assets down to a three-person lower middle market fund with $80M to deploy and a very specific thesis about fragmented service businesses in one geography. Those are not the same buyer. They don’t want the same business, they don’t move at the same speed, they don’t structure deals the same way, and they are not all equally relevant to you.
At the top, the mega funds, KKR, Apollo, Carlyle, you’re looking at businesses doing $100M EBITDA and above. A different universe from this conversation.
The upper middle market, funds between $1B and $5B in size, typically targets businesses with $20M to $100M in EBITDA. Sophisticated, fast-moving, leverage-heavy. These buyers know exactly what they’re doing and they will conduct a forensic examination of whether your business is actually what you say it is. Their due diligence teams are experienced enough to find things your own management team has stopped noticing.
The core middle market, funds between $250M and $1B, is where most founders at the level this newsletter addresses will encounter PE. Businesses doing $5M to $25M in EBITDA. These funds are active, competitive, and capable of moving quickly on the right asset. They live and die by finding quality businesses before the competition does, which means they can be highly motivated when they find something they want.
The lower middle market, funds under $250M, targets businesses at $2M to $8M EBITDA. More hands-on post-close, less financial engineering, closer working relationships. Returns in this segment are driven more by operational improvement than leverage, which means the fund genuinely needs your business to get better. That changes the post-close dynamic considerably, and whether that’s good or bad for you depends almost entirely on the quality of the operator they put in.
What every PE fund shares, regardless of tier, is the same fundamental incentive structure. They raised capital from investors, pension funds, endowments, institutions, with a commitment to return it at a multiple within a defined window. Typically a ten-year fund life, with hold periods of three to five years per investment. They are not patient capital. They need to buy, improve, and exit on a schedule, because the economics of the fund require it.
This is not a criticism of PE. It’s just the system. Understand the system and you can read your deal clearly. Walk in without understanding it and you’ll be surprised by things that were entirely predictable.
The bad deal in PE, at any tier, almost always comes from the same place. A founder who didn’t understand that the fund’s exit timeline and their own financial goals are different problems, and may not be compatible ones. Rollover equity with no protections. Earn-out mechanics tied to metrics the buyer controls post-close. A governance model that hands the buyer every lever while leaving the founder with accountability but not authority. I’ve been inside good PE deals and bad ones. What separates them is almost always whether the founder understood what they were walking into before they walked into it.
PE-Backed Roll-Ups.
Worth separating from the broader PE category, because the logic is meaningfully different.
A roll-up already has a platform business. They’re not building something around you; they’re adding you to something that already exists. The valuation logic is multiple arbitrage: they acquire bolt-ons at a lower multiple than the platform trades at, and the act of combining creates value on paper before anyone has done anything operationally. It’s a legitimate strategy and a common one. It also means you, as the bolt-on, have less negotiating leverage than you might assume going in.
There are other businesses in your sector they could acquire instead of you. The deal terms tend to reflect that reality. Understanding this doesn’t mean you should avoid a roll-up sale. It means you should go in with clear eyes rather than discovering the dynamics after the ink is dry.
Post-close in a roll-up means integrating into an existing operating model, an existing leadership structure, an existing culture. How well that goes depends enormously on how well the platform business is actually run, which is something worth examining carefully before you close. Most founders don’t examine it carefully enough, and some don’t examine it at all.
Family Offices.
One of the most underutilised buyer types in the market, and one that’s grown significantly as a category. UBS data from 2024 shows PE allocations at family offices rising to 27% of portfolios, with direct investments representing an increasing share of that.
The fundamental difference from institutional PE is capital structure. A family office manages wealth on behalf of one family or a small group of principals. There is no fund cycle, no LP commitments to return by a fixed date, no pressure to exit within a defined window. The capital is genuinely patient in a way that institutional PE structurally cannot be, which significantly changes the post-close relationship.
No mandatory exit in three to five years. No pressure to hit short-term targets so the fund can sell. Often a genuine interest in preserving what you built, the brand, the culture, the team, because the family office is planning to own it for a long time and has no incentive to dismantle it.
The trade-off is that family offices don’t always compete on headline multiples. Due diligence can be slower and less structured than an institutional process. For a founder who wants a clean exit, a fair price, and confidence that the business lands somewhere it will be looked after, the family office conversation is worth having. A lot of founders never have it because they don’t realise it’s an option and most brokers don’t play in this network.
Search Funds.
At the other end of the spectrum from the mega funds: an individual operator, typically with an MBA and backing from a small group of investors, raising capital specifically to find, acquire, and run one business. The Stanford 2024 study on search funds shows an average IRR of 35% and a 4.5x return for investors, which makes it a more serious asset class than the relatively low profile would suggest.
For this audience, search funds are most relevant at the lower end of the range, businesses doing $1M to $4M EBITDA. If your business is at eight or nine figures in revenue, you’re likely to be above the typical search fund target. But the post-close dynamic is worth understanding because it’s unlike any other buyer category. You’re handing the keys to one person who is going to run your business as their life’s work. Evaluating whether that’s a good outcome requires a different kind of judgement from evaluating a PE firm. You’re assessing a human being, not an institution.
The Question That Actually Matters.
The anatomy of a bad deal almost never starts with bad legal documentation or a poorly structured earn-out. It starts earlier, in the moment a founder accepted an offer from a buyer whose incentives were fundamentally misaligned with what the founder actually wanted, without ever fully understanding the misalignment.
The question worth answering before you receive an offer is not who will pay the most. It’s what you actually want from this outcome, and which buyer type is capable of delivering it.
If you want to exit completely and walk away with maximum cash, a strategic or a well-structured institutional PE deal is probably your answer. If you want to stay involved, build something bigger, and benefit from a second exit, a PE platform at the right tier makes more sense. If you want patient capital and no fund cycle pressure, find the family offices that are active in your sector. If you want the business to continue as it is, with someone running it who genuinely cares about what it becomes, look at family offices and search funds.
None of those is the right answer in the abstract. They’re each the right answer for a different founder with different goals. The point is to know which one is yours before you’re sitting across the table from someone who has known theirs for twenty years.
Know your buyer. Then decide whether what they want and what you want are compatible enough to build a deal around. If they are, you’re in the right room. If they aren’t, the best lawyers in the world won’t fix it for you later. I’ve put together a one-page reference on what a good deal and a bad deal looks like with each buyer type – the structures to look for, the red flags to watch, and the questions worth asking before you sign anything.
Access your 1-page 'Know Your Buyer' guide
What’s Next?
A useful first step
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