We are evaluating three competing LOIs: a family office offering 5.5x EBITDA in all cash, a private equity sponsor offering 7x with 20 percent rollover equity, and a strategic competitor offering 8x with a heavy earnout. How do we evaluate the true net present value and execution risk across these radically different buyer types?

Question

Tyler Smith · Accepted Answer

Comparing headline multiples across different buyer categories is a dangerous trap. An eight-times multiple loaded with subjective milestones often yields less real cash than a clean five-and-a-half times offer paid entirely at closing. You must discount each offer based on transaction structure, post-close control, and counterparty execution risk.

The strategic competitor offer at 8x carries the highest integration risk. Strategic buyers pay elevated multiples because they plan to strip out costs and absorb your sales channels. If half of that valuation sits inside an earnout, you are betting your payout on an integration you will not control. Unless the earnout milestones are exceptionally clear and under your direct operational governance, discount that contingent component by at least fifty percent when modeling your proceeds.

The private equity sponsor at 7x with twenty percent rollover equity represents an equity partnership. You are accepting 5.6x in cash and reinvesting 1.4x into their platform. This is attractive if the sponsor has an institutional track record of multiple arbitrage and accretive add-on growth, giving your rollover a second bite of the apple. However, rollover equity is subordinate to senior lender debt and preferred equity returns.

The family office at 5.5x all cash offers certainty of close, clean post-sale separation, and zero operational tail risk.

Model each option on net after-tax proceeds and your willingness to stay engaged post-close. If your priority is an absolute exit, take the clean cash. If your leadership team wants to scale a larger enterprise, roll equity with the sponsor.