A private equity roll-up wants to acquire us at a 6x standalone EBITDA multiple while their platform trades at 12x, but they want half the purchase price deferred over two years contingent on divisional EBITDA. How do we defend against their post-close overhead allocations and ensure our deferred valuation is tied to measurable operational metrics we control?

Question

Tyler Smith · Accepted Answer

When a private equity platform buys your company at a 6x multiple and rolls you into their 12x entity, they are capturing massive multiple arbitrage on your operational earnings. Agreeing to tie half of your purchase price to a two-year contingent earnout based on bottom-line divisional EBITDA is dangerous because the platform can immediately load corporate overhead onto your operating ledger, wiping out your earnout before it matures.

If you agree to a deferred earnout structure, the measurement metric must not be bottom-line EBITDA. Platform acquirers regularly reallocate centralized corporate costs including executive management salaries, enterprise ERP licensing, corporate legal bills, and consolidated debt service down to their operating subsidiaries. These accounting entries will depress your division's net profitability regardless of how efficiently your team executes.

Demand that the earnout be measured on Gross Profit or a tightly defined Contribution Margin instead. These top-of-funnel metrics track customer revenue and direct delivery costs, which are variables your leadership team actually influences. If the buyer insists on using a modified EBITDA metric, the purchase agreement must strictly exclude all allocated parent company overhead, acquisition integration expenses, management fees, and non-operational accounting adjustments.

Additionally, incorporate explicit post-closing operational covenants. Require the buyer to maintain your sales capacity, avoid diverting your core customers to other platform subsidiaries, and preserve sufficient operational working capital. Pair this with comprehensive audit rights, giving your CPA direct access to the parent company's books twice a year. If the buyer will not accept operational protections and objective calculation metrics, convert the deferred earnout into a secured, interest-bearing seller note with zero performance contingencies.