A private equity buyer wants to buy our business at a six-times EBITDA multiple and bolt us into a platform trading at twelve times EBITDA. How do we capture a share of that multiple arbitrage during negotiations?

Question

Tyler Smith · Accepted Answer

Multiple arbitrage is the primary engine of private equity roll-up returns. A sponsor buys a foundational platform at eleven or twelve times EBITDA, purchases smaller add-ons at six times, and immediately captures the spread because the combined earnings are valued at the higher platform multiple upon exit. If your operations, technology, or client base are essential to that expansion, you should not give away that six-turn arbitrage for free.

To extract your share of that valuation spread, negotiate with clear operational leverage:
- Push for rollover equity valued at the platform level. If you accept a six-times multiple on the cash portion of the deal, roll a meaningful portion of your proceeds into the parent entity. When the platform sells at the higher multiple, your rolled equity captures the exact same twelve-times or fourteen-times multiple arbitrage as the sponsor.
- Demand an integration performance bonus or contingent equity earnout. If your documented core processes, AI tooling, or management team will serve as the operating foundation for future add-ons, tie an equity bonus to the successful onboarding of subsequent acquisitions.
- Position your business as the platform itself. Use your V/TO® and documented operations to demonstrate that your infrastructure is already enterprise-ready. If you have the operational capacity to absorb other companies without adding administrative overhead, you are not an add-on; you are a platform deserving a platform multiple.

Recognize what you bring to their portfolio. Never accept an add-on valuation discount if your operational systems are doing the heavy lifting for their roll-up strategy.