A private equity firm wants to acquire our company as a bolt-on add-on for their existing platform company that trades at 11x EBITDA, but they are only offering us 5.5x due to our size. How do we capture our fair share of that multiple arbitrage during negotiations?

Question

Tyler Smith · Accepted Answer

Private equity platforms thrive on multiple arbitrage. They buy smaller companies at 5x or 6x EBITDA, integrate them into a larger platform, and exit the combined business at 11x to 14x. Walking away simply because they generate a profit gets you nowhere. Your leverage lies in demanding a contractual bridge into that value creation.

First, negotiate for rollover equity directly into the top-level platform holding entity, not your standalone operating subsidiary. If the sponsor is buying you for 5.5x cash, demand that ten to twenty percent of your purchase price rolls into the platform parent on the exact same terms and class of equity as the institutional fund. When that 11x platform sells three years later, your rolled equity captures the full expansion multiple alongside the sponsor.

Second, use operational scalability to demand an add-on premium. If you run on EOS and possess documented processes, a clear Accountability Chart, and scalable technology, your business requires minimal integration overhead. Present the sponsor with a clean integration blueprint showing that your corporate add-backs and shared service synergies will instantly lower their effective acquisition multiple to under 4x.

Third, introduce an earnout tied directly to the platform exit multiple. If the sponsor claims your subscale size prevents them from paying more today, offer a deal structure where your deferred consideration increases proportionately if the combined platform exits at or above their targeted 11x multiple. Force the sponsor to share the upside they are generating from your cash flow.