We received competing offers: a family office offering 6x EBITDA with 100 percent cash at close, versus a private equity firm offering 8x EBITDA with thirty percent rollover equity. How should an owner objectively analyze which deal structure yields higher net risk-adjusted proceeds?

Question

Tyler Smith · Accepted Answer

A headline 8x multiple with rollover equity often looks superior on an LOI, but headline valuations can be deceptive. In the private equity offer, thirty percent of your purchase price is reinvested as minority equity in their new holding entity. You become a junior equity holder alongside a sophisticated sponsor who controls the capital structure, management fees, and exit timing.

To make an objective decision, calculate your net walkaway proceeds and stress-test the rollover terms:
- Examine the equity class: Does the sponsor receive preferred equity with an eight percent compounding hurdle while your rollover is common equity? If so, significant company growth is required just for your shares to retain their face value.
- Quantify management fee drag: Sponsors typically charge two percent annual management fees plus transaction fees on add-on acquisitions, which dilute earnings before distributions reach common unit holders.
- Assess debt load: The private equity firm may lever the business at four times EBITDA, leaving thin margins for operational errors. If a recession hits, your rollover equity can be zeroed out.

Conversely, the family office offering 6x pure cash delivers total liquidity, zero subordination, and complete finality. There are no ongoing indemnification traps tied to rollover covenants.

If you believe strongly in your company expansion under the buyer and want a second bite of the apple, the PE deal can multiply your net wealth. If your goal is certainty of capital and lifestyle preservation, the cash offer at 6x frequently delivers a superior risk-adjusted return.