Why Private Equity Is Approaching Your Business
Most founders who receive a PE approach are under-valued before the first meeting. Not because the business is weak — but because the buyer already knows more about it than they do.
Most founders who receive a PE approach are under-valued before the first meeting. Not because the business is weak — but because the buyer already knows more about it than they do.
Where this fits
Demand → Pricing → Cash → EBITDA → Network → Visibility → Value
If you have received a call, an email, or a formal approach from a private equity firm — or someone acting on their behalf — you are not alone. This is happening across Australian manufacturing, distribution, and industrial businesses at a rate most owners have not seen before.
The question is not whether they are interested. They clearly are. The question is why, and whether what they are offering reflects what your business could actually achieve in a properly run process.
Here is what most founders do not know going into that first conversation: the buyer has already built a model of your business. They have estimated your earnings, assessed your sector, and formed a view on what they believe your business is worth — before you have said a word.
That is the asymmetry you are walking into.
Private equity firms raise capital from investors — pension funds, family offices, large institutions — and deploy that capital into businesses they believe they can grow and sell at a higher price over a defined period, usually five to seven years.
They are not buying your business because they like you. They are buying it because they believe the gap between what they pay and what they eventually receive is large enough to justify the risk.
When they approach your business, something signals opportunity. It might be your customer relationships, your market position, your margins, or simply the fact that your sector is one they have targeted for consolidation.
The approach feels personal. It is not. You are one of several businesses they are assessing in your space simultaneously.
What Makes Australian Mid-Market Businesses Attractive
Industrial distribution, manufacturing, building materials, and commercial services businesses in Australia have become attractive to private equity because they often have:
What this means for you:
Most founders don’t see this clearly until they’re already in a process.
If you want to talk it through properly before that, we can do that.
→ Discuss your situationThis assessment applies the same lens a PE buyer uses — validating EBITDA defensibility, working capital, management depth and commercial concentration.
The metrics reflect actual PE diligence processes across industrial and distribution businesses — not generic valuation frameworks.
Used by founders and operators preparing for growth, capital or exit.
Start valuation →Do you know what actually drives your valuation?
What they say:
Strategic fit
What it means:
Your business is in a sector, geography, or customer segment they have already decided to build in. You are not a random target. They have been watching businesses like yours for months before making contact.
What they say:
Platform asset
What it means:
They want to buy your business and use it as the base to acquire several others in your space. Your business becomes the vehicle for a consolidation strategy. What matters is not just your performance, but your position in the market.
What they say:
EBITDA multiple
What this means in practice: the price they offer is expressed as a number multiplied by your earnings. Higher earnings, higher price — but the earnings figure they use is not necessarily the one on your P&L.
What it means:
The price they offer is expressed as a multiple of your earnings. EBITDA stands for earnings before interest, tax, depreciation, and amortisation — it is a measure of what the business earns from operations, stripped of financing decisions. The offer price divided by this number is the multiple.
In plain terms: EBITDA is essentially your business profit before accounting for how it is financed and before depreciation charges on equipment and buildings. A business earning $1 million in EBITDA at a 6x multiple would be valued at $6 million.
What they say:
Hold period
What it means:
They plan to own the business for a defined number of years, then sell it. Every decision they make — operational, financial, structural — is oriented toward that exit. Understanding this changes how you interpret everything they propose post-acquisition.
What they say:
Management rollover
What it means:
They may ask you to keep some of your sale proceeds invested in the new ownership structure. This aligns incentives but means your final payout depends on the exit they engineer — which you will have limited control over.
What they say:
100-day plan
What it means:
They already have a list of changes they intend to make in the first months of ownership. Some operational, some structural. The shape of this plan is worth understanding before you sign anything.
This is usually where things get misread.
Most founders assume the approach is exploratory. It is not. If you want to understand what the buyer already knows about your business, it’s worth a conversation before you go further.
→ Discuss your situationMost founders misjudge valuation. Get clarity in minutes using a structured commercial model built from 25 years of P&L accountability across industrial and distribution businesses.
Start valuation →By the time most founders realise the buyer's assumptions don't match their view of the business, the conversation is well advanced. If you want to understand your actual position before you get there, it's worth a conversation.
→ Discuss your situationBefore state
A distribution business in Queensland receives an approach from a mid-market PE firm. The initial conversation is friendly and exploratory. The buyer is well-informed, asks good questions, and expresses genuine interest in keeping the founder involved post-sale. No offer is made. The founder shares management accounts to progress the conversation.
The issue
Six months later, the founder has signed a deal at a price lower than he could have achieved had he prepared first. The business had strong revenue but inconsistent margin. The buyer knew that before the first conversation — the founder found out during due diligence.
What this means in practice: a structured investigation of your business by the buyer and their advisors. They will test every claim you have made about performance, customers, and financials.
What the buyer saw
A customer concentration issue — two customers representing 48% of revenue. A working capital position that looked worse than the P&L suggested once debtor days were properly analysed. Reporting that could not support the margin claims being made for individual product lines.
What this means in practice: the cash tied up in running your business — debtors, inventory, creditors — is assessed at settlement. If it is above the normalised level, it reduces what you receive.
Impact on value
Each issue gave the buyer grounds to adjust terms. The gap between the initial indicative offer and the final deal price narrowed at every stage. The final outcome was $3.2 million below the opening position. None of this was dishonest — it was entirely predictable. And it would have been preventable with twelve months of preparation before the process started.
What this means for you:
What this means in practice: you need an independent view of what the business is worth before a buyer forms theirs. Without it, their number becomes the reference point for every negotiation that follows.
Pricing
A business with consistent pricing and margin discipline is worth more than one where margin varies by customer, job, or sales rep. If your pricing is held together by relationships rather than structure, buyers will discount that risk.
What this means in practice: you need your own view of what the business is worth before a buyer tells you theirs. Without it, their number becomes the reference point for everything that follows.
What this means in practice: you need your own view of what the business is worth before a buyer tells you theirs. Without it, their number becomes the reference point for everything that follows.
Cost to serve
Do you know what it actually costs to serve each customer or product line? Businesses that cannot answer this clearly are harder to value — and buyers price that uncertainty into the offer.
Revenue composition
Is growth coming from your best customers and highest-margin products? Buyers look at the composition of your revenue, not just the total. Volume that keeps people busy without building margin does not support value.
Overhead structure
Fixed costs that are not clearly matched to revenue capacity create risk in a buyer's model. If overhead has grown with revenue but cannot easily contract, that affects value.
Before a private equity firm makes a formal offer, they have already built a financial model of your business. That model rests on a few key numbers — and your EBITDA is the most important one.
The EBITDA they use is not necessarily the number on your P&L. They will adjust it — removing one-off items, adding back owner costs a new owner would not incur, and challenging items they believe are overstated. This process is called normalisation.
In plain terms: Normalisation means adjusting your reported profit to show what the business truly earns in normal operating conditions — removing personal expenses that went through the business, one-off costs, and any items that inflated or deflated the real number.
They will also look at your working capital position.
In plain terms: Working capital is the cash the business needs to operate — what customers owe you, minus what you owe suppliers, adjusted for stock on hand. If this number is high, the business is tying up cash that could otherwise be in your pocket.
Your pipeline matters. A business with strong visible forward revenue is more valuable than one reliant on repeat purchases that are assumed but not contracted.
In plain terms: Pipeline is your forward view of revenue — the jobs, orders, or contracts you have secured or are likely to secure. A documented pipeline reduces buyer risk because it shows earnings will continue after the acquisition.
Execution matters too. A business where outcomes depend on the founder being present every day carries a different risk profile to one where the team can run operations independently.
What this means for you:
The mechanics of an unprepared engagement are consistent enough to be predictable. An approach arrives. The initial conversation is exploratory. At some point, financial information is requested. The seller provides it because it seems like a reasonable next step.
What they have done is given the buyer the information they need to build their model before the seller has built their own. From that point, the buyer has more information about what the business is worth under their ownership model than the seller does.
Why is private equity interested in my type of business?
Industrial, manufacturing, and distribution businesses often have the characteristics PE buyers want — recurring customers, operational complexity that creates margin opportunity, and fragmented markets where consolidation makes sense. Your sector has become a target. The timing of an approach is driven by their investment thesis, not by something you have done to attract attention.
Do I have to respond to a PE approach?
No. But understanding what drives the approach helps you make a better decision — whether that is engaging now, preparing first, or declining entirely. An uninformed response is the only genuinely bad option. Even if you have no intention of selling, understanding the approach helps you make that choice clearly.
How do they know what my business is worth before I tell them?
They do their own research. They build models using industry benchmarks, competitor transactions, and whatever public information exists. They often know more about your market than you expect going into the first meeting. Their estimate of your EBITDA may already be close to reality — which is why it matters that you know your own number first.
What is the difference between a strategic buyer and a private equity buyer?
A strategic buyer — a competitor or adjacent business — acquires you to combine operations and extract synergies. A private equity buyer acquires you to grow and exit at a higher multiple. Their motivations are different, the due diligence they run is different, and so are the deal structures they prefer.
Should I talk to an advisor before responding?
Getting independent advice before responding is sensible. Understanding what your business is actually worth — and what a prepared sale could achieve — gives you a benchmark against which to assess any informal approach. Without that benchmark, you are negotiating from the buyer's frame of reference, not your own.
What happens if I engage and then decide not to sell?
You can withdraw at any stage before signing binding documents. But each stage of engagement gives the buyer more information about your business. Understand what you are sharing and when before you start. Information shared early in a process cannot be unshared.
Is it normal to receive an approach through an intermediary rather than directly?
Yes. Many PE firms use brokers, advisors, or industry contacts to make initial approaches less formal. The intermediary may present themselves as conducting market research or exploring strategic options. The buyer is behind the enquiry regardless of how it arrives.
How much time do I have before I need to respond?
If you want to work this through yourself
Run the main business diagnostic →Why is private equity interested in my business?
Private equity firms target businesses with recurring revenue, operational complexity, and fragmented competition. Australian industrial, manufacturing, and distribution businesses have become a primary focus because they combine these characteristics with owners who have not yet formally prepared for a sale.
What does a private equity approach actually mean?
It means a buyer has already formed a view on what your business is worth and what they can do with it. The approach is not exploratory — it is the beginning of a structured acquisition process. Understanding that dynamic before you respond changes how you engage.
How do private equity firms value a business?
They use an EBITDA multiple — your adjusted earnings multiplied by a factor that reflects the quality and risk of the business. The multiple varies by sector, growth rate, and business quality. Understanding your normalised EBITDA before the buyer calculates it is the starting point for any informed response.
Should I respond to an unsolicited approach?
You can — but not before you understand your own position. An unsolicited offer reflects what the buyer is prepared to pay without competition. It is almost always below what a structured, prepared sale would achieve. Getting an independent view of your business first gives you a basis for comparison.
What is the difference between a PE buyer and a trade buyer?
A trade buyer acquires to combine operations and extract synergies. A private equity buyer acquires to grow and exit within a defined period. Their motivations, deal structures, and post-acquisition behaviours are fundamentally different.
Built by an operator who has scaled and exited businesses across private equity, listed and private environments. View track record →
Built on real operating and private equity metrics — not generic multiples.
Used by founders and operators preparing for growth, capital or exit.
Start valuation →See also: EBITDA Valuation Tool · Pricing & Margin Improvement
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