We are reviewing offers from a strategic buyer promising synergistic cost savings and a private equity sponsor focused on platform growth. How do we calculate the actual net cash difference between their adjusted EBITDA valuations when the strategic buyer wants to slash our operating overhead and the sponsor expects us to reinvest?

Question

Tyler Smith · Accepted Answer

Strategic buyers and private equity sponsors look at your valuation through different lenses, and you must understand how this impacts your net cash. A strategic buyer wants to capture synergies. They will model your valuation by adjusting your EBITDA upward, adding back your redundant back-office overhead, duplicate software licenses, and administrative costs because they plan to absorb your operations into their existing platform. A financial sponsor, on the other hand, is looking at your business as a platform or an add-on. They will value you based on a capitalization of earnings model, focusing heavily on your standalone capability to scale. They will want you to reinvest in your infrastructure, meaning your capital expenditure requirements post-close will remain high. When comparing their offers, do not just look at the headline multiple. Look at the adjustments they are making to your EBITDA. A strategic buyer might offer a six-times multiple on a highly adjusted EBITDA of three million dollars, while a PE sponsor might offer a seven-times multiple on a more conservative EBITDA of two million. Calculate the actual net cash after tax, escrow holdbacks, and transaction fees. Use your Step by Step Exit frameworks to evaluate which buyer structure aligns with your long-term goals and the continuity of your leadership team.