We are evaluating competing offers from a private equity firm offering six times EBITDA with twenty percent rollover equity, and a strategic competitor offering seven point five times EBITDA in an all-cash asset sale. How do we structurally evaluate which deal delivers superior risk-adjusted proceeds?

Question

Tyler Smith · Accepted Answer

Comparing a strategic cash buyout directly against a private equity recapitalization requires looking past headline multiples to net after-tax proceeds and execution risk. Strategic acquirers offer higher headline multiples because they bake in immediate operational cost synergies, but their deals are frequently structured as asset sales.

An asset sale can trigger double taxation for corporate entities, severe depreciation recapture, and substantial state tax drag, reducing your net walkaway proceeds by fifteen to thirty percent. Strategic deals also feature higher integration friction, cultural erasure, and aggressive employee non-compete terms that sideline your leadership team.

A private equity sponsor offering six times EBITDA with twenty percent rollover equity represents a partnership model. The sponsor provides liquidity today while allowing you and your key leaders to retain a second bite of the apple. If the sponsor uses institutional leverage and bolt-on acquisitions to grow the business from three million to ten million in EBITDA, your twenty percent retained equity could be worth more than the entire original transaction value upon their exit in four to six years.

However, rollover equity carries structural risk. You must ensure your rollover shares are pari passu with the sponsor equity, rather than common units subordinated to preferred returns, management fees, and aggressive debt facilities. If you prefer a clean exit, take the strategic cash. If your leadership team is energized to scale, the private equity recapitalization often creates greater long-term wealth.