What to Know Before Selling your Business to Private Equity

Finding the right home for a business you’ve spent years—or even decades—building is the hardest decision you will make as an owner. Even if selling your business is years away, it’s never too soon to prepare for a future exit.

Succession planning—or business transition planning—is the process of preparing to transfer ownership of your business.

Selling isn’t just about price. It’s about timing, judgment, and who you trust to carry the business forward. In this article, our deal team walks you through some of the factors and considerations to review before you sell, including valuation, timing, preparation, and how to find the right potential buyer.

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Step 1: Deciding to Sell

The first step in this process is deciding to sell and determining why you want to sell your business. This a deeply personal decision. For many founders and small business owners, retirement planning is the key factor to consider.

Retirement & estate planning

Having a clear succession plan is critical as you reach your anticipated retirement. For many business owners, a retirement plan consists of collecting the proceeds from the sale of your business. Whether you plan to sell the business to a family member, heir, or key employee, selling your business should be integrated into your tax strategy and estate planning.

Choosing a successor

Family members and key employees are typically the first choices, but in the absence of any obvious successors, many owners turn to third-party buyers to take over control of their business.

The right successor for your company depends on your personal circumstances—whether you have children, a partner, a trusted employee—and on your own financial goals.

Other reasons to sell

Beyond retirement, there are several reasons you might consider selling your company. These reasons could include losing key employees, disagreements with business partners, or the desire to pursue a new venture. However, many owners are simply ready to move on—seeking a clean break and the freedom to spend their time differently.

Our team would love to talk through all your options, whether that is exploring a sale today, a year from now or ten years from now.

Step 2:  Preparing Your Business for Exit

Once you’ve decided it’s the right time to sell your company, the next step is compiling your company’s financial data and key performance indicators (KPIs) ahead of any discussions with potential buyers.

Most private equity buyers will ask to see the following to get a picture of your company’s historical financials:

1. Revenue over the last three years, broken down by service or product offering
2. Net income (profit after all expenses are paid)
3. EBITDA (earnings before interest, taxes, depreciation, and amortization)

Revenue and composition

Revenue over the last three years is a standard metric a potential buyer will look at for insights into the trajectory of a business (for example, whether it is growing, contracting, or stable).

At Alpine, we also look at the composition of revenue, such as contribution by business line or by customer, which will vary depending on your industry. If you’re in the exterior services industry, for example, we would want to know what percent of your sales come from each category across roofing, windows, and siding. If you own an MSP or IT services company, we’d want to know what percent of your revenue comes from contracted managed services vs. one-time consulting arrangements.

Related to revenue composition, our team may also look at your customer type. Using the exterior services example again, we would want to know what percent of your customers are residential versus commercial.

If you’re not sure whether you’d qualify for our investment criteria, reach out to our team via email to learn more.

Net income

Net income tells a potential buyer how profitable you are. We look at net income to understand the general profitability of the business as you operate it today.

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

EBITDA is often viewed as a proxy for “cash flow” in your business. To get to that number, take your net income and add back any interest, taxes, depreciation, and amortization. There may be one-time investments into the business, personal expenses, and owner compensation (if you are choosing to retire or take a step back from day to operations) that—when added back—help a potential buyer get a better understanding of true profitability.

Valuation

With a clear understanding of how profitable the business is today, a buyer will typically apply a multiple of EBITDA to arrive at an initial proposed value for your business. The multiple that an investor will use to value your business is dependent on a number of factors:

• Your industry
• The size of your business
• The type of customers you serve
• Whether you service them on a contractual or one time basis
• General economic trends impacting your industry

A simple way to think about how to value your company is: Company Valuation = EBITDA x EBITDA Multiple (or ARR for high-growth software companies).

Our team can walk you through typical multiples for your industry. As we learn about your business specifically, we’ll get sharper in our calculation.

Step 3: Initial Calls

The purpose of an initial intro call is to establish a high-level understanding of how your business fits into Alpine’s investment criteria. It’s also time for you to see whether we’re the right fit for the organization that you have built. We want to hear your story.

Generally, we will cover the following on the first call:

• Your story
• Alpine’s PeopleFirst approach to investing
• Your goals for selling
• The high level financial and organizational profile of your business
• Any questions you have

Step 4: Data Request

Our team will send you a request for data on your company. This typically includes key financial data like P&L statements. Prior to sharing any sensitive financial data, we can execute a standard NDA (non-disclosure agreement).

Step 5: In-Person Meeting

If we’re both enthusiastic about moving forward after reviewing the financials, we’ll arrange an in-person meeting. But this isn’t your typical “sit-down meal.” At Alpine, we know every business—and every founder and business owner—is unique. This is our chance to understand your world and vice versa.

Our team tailors its visits to fit your needs and comfort. Whether it’s meeting offsite or after hours to maintain confidentiality, walking through your facility or warehouse to see operations in action, or simply sitting down with you and your family for a candid conversation, our goal is to listen and learn. We’re just as interested in your values, culture, and team as we are in your numbers.

We recognize that we don’t come from your industry, which is why we take this time seriously. It helps us ensure a strong personal and cultural fit, not just a financial one. Use this time to get to know us, ask the hard questions, and explore whether Alpine is the right home for what you’ve built.

Step 6: Letter of Intent (LOI), Exclusivity Period, and Due Diligence

If both sides are mutually aligned, our team will typically present a Letter of Intent (LOI). The LOI will include a proposed purchase price—subject to standard due diligence—providing greater clarity and confidence around valuation.

Entering into an LOI signals our intention to finalize the deal. This step reduces uncertainty and reinforces our commitment to moving forward with the acquisition.

Once the LOI is signed, we will usually enter an exclusivity period during which you cannot entertain other acquisition proposals for some period of time.

During this period, the Alpine team does confirmatory due diligence on your business, including the following main workstreams:

1. Quality of earnings (finance and accounting)
2. Operations diligence
3. Tax diligence
4. HR benefits/insurance
5. Legal diligence

Quality of earnings: Diligence and Analysis

During this part of the process we will bring in financial consultants to ensure your company’s financials are in line with the expectations set earlier. We will work closely with your established point of contact to deliver a “Quality of Earnings” analysis.

Operations: Diligence and Planning

It’s important for us to understand your business’s operations and internal processes. We may provide thoughts at this stage on growth opportunities we see, hiring recommendations, areas for improvement, and communications planning for when the deal is finalized.

Tax: Diligence and Structuring

We will perform a tax review at the local, state, and federal levels. The result is an assessment of your company’s tax situation that helps us determine the transaction structure.

Legal: Diligence and Documents

At this stage, we will perform a review of your customer, employee, supplier, and other key contracts. We will work with you and your legal counsel to finalize the terms of a purchase agreement and other legal documentation.

Step 7: Finalizing Deal

Once all due diligence is complete and both parties approve the purchase agreement—both sides sign the agreement, funds are transferred, and the deal officially closes.

Every transaction is different post-close, but throughout diligence, we typically align on key elements, like the future of your employees, your role going forward, and the plan for the business under new ownership.

As for your business and brand, every company is different. Selling your business is one of the most important decisions you’ll make as a founder. Whether you’re planning to sell now or are starting to think about the future, preparing early can help you protect what you’ve built and achieve the outcome you want.

If you’re considering a sale, our team can walk you through what to expect and how to get started. Book a 15-minute call to learn more about what a transition could look like for you and your business.

Book a call with our team today to get started