Private equity
A firm that acquires businesses using pooled investor capital and leverage, aiming to grow them and exit within a defined holding period.
Also called: PE · Financial sponsor · Sponsor
A PE firm raises a fund from institutional investors, acquires companies, holds them for a period commonly in the three-to-seven-year range, and returns capital by selling or recapitalising. Acquisitions are typically funded with a mix of equity and debt, and the debt sits on the acquired business — which is why leverage capacity and earnings stability matter so much to what they can pay.
For a seller the practical characteristics are consistent: professional and thorough diligence, a strong preference for rollover equity to keep the seller aligned, active governance after closing, and a defined exit horizon that means your business will be sold again. Firms below a certain size often want the owner to stay for a period; larger ones frequently want to install their own management.
A platform acquisition and an add-on are different propositions. As a platform, your business becomes the base for a buy-and-build and your management may lead it. As an add-on to an existing platform, you are being integrated into someone else's company, which usually means a different price, a different role, and a different degree of independence.
Where sellers get caught
- Treating projected rollover value as consideration. Only the cash at close is certain.
- Not asking where the firm is in its fund cycle, which affects both appetite and timeline.
- Overlooking the shareholders agreement because the headline price was attractive.
Common questions
Will private equity keep my staff?
It depends heavily on whether you are a platform or an add-on. Platforms usually retain the team; add-ons often consolidate functions with the existing platform. Ask directly and early.
Do I have to roll equity?
Many firms strongly prefer it and some require it. Others will do an all-cash deal at a different price. Which kind you are dealing with is worth establishing before diligence.
Related terms
Rollover equity
A stake the seller keeps in the business after the sale, usually in the buyer's new holding company, in exchange for taking less cash at closing.
Platform acquisition
The first, largest acquisition in a buy-and-build strategy, which becomes the base the sponsor grows through further acquisitions.
Add-on acquisition
A smaller business acquired to be integrated into an existing platform company, usually as part of a buy-and-build strategy.
Independent sponsor
An acquirer who identifies a deal first and raises the equity for it deal by deal, rather than investing from a committed fund.
Guides that use this term
Where private equity comes up in a real sale, and what it changes.
Last reviewed 2026-08-25. General information for business owners, not legal, tax, or financial advice — terms, thresholds, and tax treatment vary by jurisdiction and by deal.