A private equity buyer wants to buy our company as an add-on acquisition for their existing platform company, but they are offering a platform-level multiple instead of reflecting our specialized niche. How do we negotiate a multiple arbitrage split to capture some of that value?

Question

Tyler Smith · Accepted Answer

Private equity firms frequently buy smaller companies at lower multiples and package them into a larger platform company that commands a premium valuation. This is multiple arbitrage. If a buyer is acquiring your company to scale their platform, they are capturing all of that arbitrage value for themselves while paying you a baseline price.

To capture your fair share of this post-merger synergy, you must negotiate for a multiple arbitrage split.

First, calculate the enterprise value of your company under your current standalone performance. Then, calculate the value of your business when integrated into their platform, using their higher platform multiple. The difference between these two numbers is the arbitrage value.

Negotiate to receive a portion of this difference by structuring a hybrid payment. This can include a roll-over equity component in their platform company, allowing you to participate in the ultimate exit at their higher multiple. Alternatively, you can structure a performance-based earnout that pays out at a higher multiple if the combined entity hits specific post-close synergy targets.

By presenting a clear, data-driven analysis of how your specialized workflows and operational systems will accelerate their platform growth, you justify your demand for a share of that arbitrage, ensuring you do not leave money on the table.