How to Position Your Business for a Lucrative Exit Despite Private Equity's Slowdown

With more than a trillion dollars estimated in unsold assets, private equity's approach to an uncertain environment has been to stall, waiting on improved market conditions.

This stance has business owners questioning whether a private equity buyout is a worthwhile option for their retirement and business succession plans.

But while private equity (PE) firms have slowed on the sell side, they're still buying, and owners who take a more proactive approach to preparing their businesses for sale might still be able to extract full value — whether they choose to sell to private equity or not.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

An exit crisis

The U.S. is experiencing a so-called Silver Tsunami, a massive wave of retiring Baby Boomers and older Gen Xers who own over half of America's private businesses.

Many are looking to cash out and move on, but with the macroeconomic headwinds — high interest rates, consumer confidence dips, tariffs, etc. — uncertainty in the merger and acquisition (M&A) marketplace has many owners feeling less secure in their future.

While specific industries are faring better than others, such sectors as construction and manufacturing face huge generational gaps. The crop of younger talent ready to take the reins isn't there, and even in family-owned businesses, fewer children are interested in following in their parents' footsteps.

In these cases, a sale might be the only option, either as part of a strategic acquisition or to private equity.

However, strategic acquisitions are more vulnerable to capital markets; while private equity maintains access to reserves of deployable capital, higher interest rates tend to push private buyers out.

While private equity is now facing its own liquidity crisis, the market uncertainty hasn't been as impactful as many business owners feared. Deals are still getting done, focusing more on the sort of high-quality assets these small-business owners possess.

Despite a noisy market, the buyers are there — it is owners who need to craft a narrative that breaks through.

The 'favorable' conditions fantasy

Despite a positive market outlook coming into 2025, "favorable" conditions for M&A and equity markets have never fully materialized.

Those hoping for a return of low interest rates have been disappointed, and geopolitical conflicts have only emphasized this new reality: "Favorable" market conditions as we once knew them don't exist.

The noise surrounding the M&A market is distracting from the essential reality: While the number of private-equity-backed exits has slowed, the number of private equity acquisitions is holding steady.

What's more, the recently passed One Big Beautiful Bill (OBBB) has extended capital gains and estate tax rates, which has not changed the impact on sellers.

The macroeconomic factors might not look like an ideal market, but the tax landscape and hunger of PE firms for strongly performing companies mean a lucrative sale is still possible — as long as owners are willing to put in the work and hire the right advisers to position their companies appropriately.

A carefully crafted data narrative

The first step for owners looking to exit is to ensure that their company exists outside their expertise; buyers aren't paid top dollar for a company whose value is tied up in the owner's talent. Proving this to a seller is where a carefully crafted data narrative becomes key.

For any buyer, but especially private equity, which lives on data, owners should be able to prove that their books are clean, costs are fully measured and profit margins and operations are in order.

As critical as this data narrative is to boosting a business's valuation, it also helps to defend it as buyers look to lower valuations. Owners need to get into the mindset of a buyer, which means having a strong grasp on market dynamics and their company's comparative scale, size and industry.

A manufacturing business in a mature or declining market, for example, will have a harder time making a successful sales pitch to private equity than one that has a future in an AI-dominated economy.

A company with a fully domesticated supply chain, meanwhile, will probably fare better with any seller than one that depends heavily on imports.

Business size matters

Then there's a simple matter of size: A manufacturer with $5 million to $10 million-plus EBITDA (earnings before interest, taxes, depreciation and amortization) could be considered a "platform" purchase for private equity in many cases, with operations and systems that push its valuation to higher multiples.

A smaller business that's perhaps doing only $2 million to $3 million EBITDA will likely be considered only an "add-on" — something that gets attached to a platform and is less valuable on its own.

Understanding how their company will be valued in a portfolio matters for some owners, especially owner-founders who built their companies from the ground up.

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They want to know that their life's work will be valued and that buyers will take care of long-tenured team members. It's an emotional decision, and frankly, it gives owners power in these negotiations to take their time and do what feels right for themselves and their companies.

That's why having a strong narrative is so critical, ensuring that a buyer doesn't make erroneous assumptions about a business.

Taking a proactive approach to a sale opens the door for business owners, improving the odds of a successful exit, even during uncertain times.

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• The Most Important Number for a Business Owner Considering a Sale
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