Private Equity Guide

How the money actually works

A private equity fund raises capital from institutions, buys companies, holds them for roughly three to seven years, and sells them. Returns come from three places: growing profit, paying down debt used in the purchase, and selling at a higher multiple than they paid.

That third source — multiple expansion — is why roll-ups exist in home services. A collection of $5M businesses bought at 5× and assembled into a $60M platform can be sold at 9× or better, purely because larger, more diversified, better-systematised businesses trade higher. The value created is real, but it is worth understanding that a large part of the return comes from the assembly itself, not from anything that changes in your branch.

Key point. Multiple expansion is the engine. If you roll equity into the platform, you participate in it. If you take all cash, you do not.

Platform versus add-on — you are being offered different deals

The first acquisition in a market is the 'platform'. Subsequent ones are 'add-ons' or 'tuck-ins'. Platforms are usually larger, command higher multiples, and keep more autonomy. Add-ons are bought at lower multiples on the theory that they are worth more inside the platform than outside it.

Knowing which one you are being offered explains most of the terms in front of you, and it is a fair question to ask directly.

Rollover equity — the part worth the most attention

Rollover means you reinvest part of your proceeds into the acquiring entity, typically 10–30%. It is the mechanism by which a second liquidity event happens, and for an owner with time left it is frequently worth more than the entire cash portion of the first deal.

The questions that determine whether it is a good deal are rarely the ones owners ask first:

• What exactly do you own — equity in the local business, or in the whole platform? Platform equity diversifies your risk; local equity concentrates it.
• Is it the same class of security the sponsor holds, on the same terms? If there is a preferred return stacked ahead of you, model what happens in a mediocre outcome, not just a good one.
• What are the tag-along and drag-along rights? These decide whether you exit alongside them and whether you can be forced to.
• How is it valued at the next event, and who chooses the valuer?
• What happens to your equity if you leave, are terminated, or die? Read the 'bad leaver' provisions carefully; they are where the surprises live.

Operator-led platforms are a different animal

Some acquirers are financial buyers who will install reporting and hold you to a plan. Others are operator-led: the people running it have run businesses like yours, and the value they add is operational rather than purely financial.

Neither is inherently better, but they are genuinely different experiences, and the difference shows up on a Tuesday afternoon rather than in the deal documents. The honest test is to ask which of the people you have met have personally run a trades business, and then to call two owners who sold to them eighteen months ago. A buyer confident in their track record will make those introductions without hesitation.

Key point. Ask for references from sellers who are two years past close — not one. Year one is a honeymoon; year two is the truth.

What actually changes after close

Realistically: reporting cadence tightens immediately, purchasing and insurance move to platform contracts within months, and a budget process arrives whether or not you have had one before. Branding, pricing autonomy and hiring authority vary enormously between acquirers — and they are negotiable before signing, not after.

Ask specifically: who approves a hire, who sets prices, who owns the brand, and what happens if you disagree with the platform on any of the three. The answers should be in writing.

The questions to ask any buyer

If a buyer is uncomfortable answering these, that is itself the answer.

• How many businesses in my trade have you bought, and how many are still run by the owner who sold?
• What is your fund's hold period, and where are you in it? Buying late in a fund's life means a sale is coming sooner than you think.
• How much debt goes onto my business at close, and what does that do to its cash flow?
• What does my life look like in month three, month twelve, and month thirty-six?
• Who on your team has personally run a business in my trade?
• What happened to the last owner who wanted to leave earlier than planned?