Selling a Business to Private Equity: What Owners Should Know First

The email says a private equity firm "would love to learn more about your business." Then another one shows up. Then a phone call.

It's flattering. Somebody wants to buy what you built.

But here's the part nobody says out loud. The buyer has done this a bunch of times. Most owners do it once. That's not a fair fight unless you show up ready.

I'm Harvey Baker Jr., a licensed Texas agent in McKinney. I work with North Texas owners who run shops, practices, and crews of about 5 to 50 people. When owners want to explore a sale, we connect them with a licensed M&A partner. My lane is the protection side. Here's the plain-English version of what to know first.

What private equity actually is

A private equity firm, or "PE firm," raises money from investors and uses it to buy companies. The plan is usually to grow the company for a few years and then sell it again, ideally for more than they paid.

That last part matters. A PE buyer isn't buying your business to keep it forever. They have a timeline and a plan to get their money back. Everything in the deal flows from that.

How PE buyers look at your business

They're not buying your hard work. They're buying what the business will do after you sign. So they look hard at:

• Profit you can prove. Clean books for the last few years. Not "the real number is higher, trust me."

• How much it depends on you. If every customer, every bid, and every hire runs through you, that's a risk to them.

• Your key people. Will your managers stay after the sale?

• Customer concentration. If one customer is a big chunk of revenue, expect questions.

• Room to grow. New locations, new services, or buying competitors.

If the business only works because you're in the building 60 hours a week, fix that before you sell. Not during.

What a PE deal often looks like

Every deal is different. These pieces show up a lot:

• Cash at closing for the part of the company you sell.

• Rollover equity. You keep a piece of the business, sometimes because the buyer wants you to have skin in the game.

• An earnout. Part of the price gets paid later only if the business hits certain numbers. It may get paid. It may not.

• An employment agreement. You stay on for a set time, with rules about what happens if you leave early.

• New debt taken on by the company to help pay for the deal.

The headline price is not what lands in your bank account. Ask what you get at closing, what you get later, and what has to happen for "later" to happen.

If you're not looking to sell the whole thing, read Recapitalization Explained: Taking Chips Off the Table Without Leaving.

Questions to ask yourself before you take the meeting

1. Why do I want to sell, and why now?

2. How long am I willing to keep working after the sale, and for whom?

3. What does my family need from the cash at closing?

4. What happens to my key people, and do they know anything yet?

5. Are my books clean enough to hand to a stranger?

6. Who's on my side of the table? CPA, attorney, and someone who does these deals for a living.

Your answers shape the deal. A buyer will happily shape it for you if you don't.

More on getting ready: Getting Your Texas Business Ready to Sell: The Owner's Checklist.

The protection gaps around a sale

Most PE conversations are about price and terms. Very few are about what happens if the owner dies, gets hurt, or a key person walks in the middle of it. That's where I come in.

1. You during the deal. A sale can take months. If something happened to you before closing, what happens to the deal and to your family? More here: What Happens to Your Texas Business If You Die?

2. Key people. Buyers want to know your top people are staying. Some owners use key person coverage or retention benefits to protect against losing them. More here: Key Person Insurance for Texas Small Businesses.

3. Personal guarantees. Find out which loans and leases you've personally guaranteed, and which ones go away at closing. If any stay with you, your family could still be on the hook. More here: Signed a Personal Guarantee? Your Family Co-Signed Too.

4. Your family after closing. Your net worth may look completely different. Some cash, plus rollover equity you can't easily sell. Your personal coverage may have been sized for the old picture. More here: How Life Insurance Fits Into a Business Owner's Estate Plan.

5. Your benefits. If you're on the company's health or group life plan, find out what happens to that coverage after the sale.

Hypothetical example for illustration only: Picture a Frisco HVAC company owner who gets a call from a PE firm. Before taking the meeting, he gets his books cleaned up, talks with his CPA and an attorney, and connects with an M&A advisor. He also realizes two personal guarantees and his family's coverage were never updated as the business grew. He fixes that first, so his family isn't depending on the deal going perfectly.

A word on advice

Selling a business involves securities, tax, and legal questions. I'm not a securities, tax, or legal advisor, and nothing here is that kind of advice. For the deal itself, we connect you with a licensed M&A partner, and you should work with your own CPA and attorney.

Get your Gap Map (free, 20 minutes)

If you want a clean starting point, I built a one-page Gap Map: where your home, your business, and your exit still depend on one person. Three columns. Plain English. You keep it either way, whether you buy anything or not.

Call or text 430-373-7752 with the word MAP for a free one-page Gap Map. Or learn more at bakerlegacypartners.com.

Built by you. Protected without you.

Insurance products involve costs, limitations, exclusions, and suitability considerations. This article is educational and is not tax, legal, securities, or financial advice.

Harvey Baker Jr., Licensed Texas Life, Accident & Health Agent, TX License #3470534. Coverage, eligibility, and rates vary by carrier and health.