Selling your business to private equity in Australia means selling a majority stake — typically 60 to 100 percent — to a professional investment fund that buys businesses, grows them over 3 to 7 years, and then sells them again. For Australian SME owners with normalised EBITDA between $1 million and $10 million, private equity is a genuine exit option alongside the more familiar trade sale. The deal structure can deliver a higher total return than most trade buyers will pay; it can also let you retain equity and collect a second, larger payout when the fund eventually exits. Neither outcome is guaranteed, but it’s worth understanding before you default to “sell to a competitor and be done with it.”
Is Your Business Actually PE-Ready?
Most businesses that go to market aren’t ready for private equity. That’s not a knock on the business — it’s an eligibility question, and the answer matters before you invest months pursuing the wrong buyer type.
Australian PE funds investing in the SME mid-market — the funds based in Sydney, Melbourne, and Perth that buy businesses in the $5M to $50M enterprise value range — generally need to see:
- Normalised EBITDA of at least $1 million, with $2 million–$5 million being the sweet spot for most funds
- Revenue that doesn’t depend on the owner walking through the door each morning
- A management team capable of running operations without daily supervision from the founder
- A sector large enough to grow into — either through bolt-on acquisitions or organic expansion
- Financials prepared by a credible accounting firm, ideally reviewed or audited
The businesses that attract PE interest most reliably are those in fragmented sectors where a fund can buy your business and then acquire five more like it over 3 years: commercial cleaning, healthcare services, trade maintenance, distribution, IT managed services, and aged care all fit this profile in the Australian market.
If your business is genuinely owner-dependent — you’re the technical expert, the primary client relationship, and the person who shows up when something goes wrong — private equity will either walk away or offer a price that fully reflects that risk.
What PE Firms Are Actually Looking For
A private equity firm isn’t buying your business for what it currently is. It’s buying it for what it can become — and its price reflects that story, not just last year’s P&L.
When a fund assesses your business, they’re running a model of what happens to EBITDA in 4 years under their ownership: Can they add headcount and replicate your margin? Can they cross-sell into existing accounts? Can they acquire three regional competitors and run them through your systems?
Recurring revenue scores highest. Service contracts, retainer arrangements, and long-term agreements reduce the risk of the business losing ground between transaction and exit. A commercial cleaning business with $4 million in contracted recurring revenue is valued differently from a project-based business with the same EBITDA — probably by a full multiple point.
Customer concentration is the sharpest downside risk. If one customer represents more than 20% of your revenue, most PE funds will either discount their offer materially or require escrow arrangements to protect against loss. I saw a deal in Western Australia recently where a highly profitable distribution business attracted an offer 0.8x below what the owner expected — a single customer at 34% of revenue was the entire reason. The financials were great. The buyer pool wasn’t.
Scalable systems matter because PE firms plan to grow fast. If another manager can run your operations using documented processes, that’s a de-risked acquisition. If the business depends on your personal knowledge of how things work, it’s an asset that gets harder to run the moment you step back.
EBITDA trajectory closes the list. Three years of growth — even modest growth — gets materially better terms than flat or declining earnings. Buyers are paying for where you’re going, not just where you’ve been.
Trade Sale vs. Private Equity: Which Gets You More?
The honest answer is that the comparison is less straightforward than it looks, and the right answer depends on your financial position, age, and how long you want to stay involved.
A trade buyer — a competitor, a larger operator in your sector, or a company entering your market — typically pays a clean price for 100% of your business. You receive the full amount at settlement, hand over the keys, and move on. No complexity, no retained stake, no waiting.
A PE firm usually acquires 70–80% upfront (sometimes 100%), with the seller rolling some equity into the new structure. That retained stake — call it 20–30% — is worth nothing until the PE firm exits. At that point, if the business has grown, your stake reflects that growth: a business that enters at a $5M EBITDA and exits at $10M EBITDA, at a similar multiple, produces a dramatically larger return on the rolled equity than the original transaction implied.
That’s the “second bite of the apple” concept. It’s real, and it can be substantial. But it comes with conditions:
- The PE firm controls the timing and the terms of the eventual exit
- You generally have to keep working in the business — for 3 to 5 years, sometimes more
- Growth is not guaranteed (private equity deals have failed businesses too)
- Your retained stake may be subject to dilution from bolt-on acquisitions
Some rules of thumb worth holding: if your business is in a sector where trade buyers compete aggressively for acquisitions — healthcare, aged care, childcare — the trade sale price can actually match or exceed PE. When multiple strategic buyers are competing for the same asset, you often don’t need PE to get the best price. See the EBITDA multiples by industry guide for a sense of what different sectors command.
How the Private Equity Sale Process Works
If you’ve sold to a trade buyer before, a PE sale will feel more structured and more document-heavy. Here’s the sequence.
Preparation (1–3 months). Before you go to market, you need vendor due diligence: an independent accounting review of your financials, often including a quality of earnings report. This costs between $30,000 and $80,000 for a business in the $3M–$15M enterprise value range. It’s money worth spending — clean vendor diligence narrows the gap between indicative offers and final price, and prevents surprises from blowing up a deal in the final weeks. Your information memorandum is prepared during this period as well.
Running the process. Your adviser approaches a shortlist of PE funds, who sign non-disclosure agreements and submit non-binding indicative offers (NBIOs). You shortlist 2–4 funds, host management presentations, and invite binding bids. A competitive process — two or more genuine bidders — is the fastest way to push price and terms.
Exclusivity and due diligence. You select a preferred bidder and enter exclusivity — typically 4–8 weeks. The buyer’s due diligence team examines your financials, customer contracts, employment agreements, and operational data in detail. This is the stage where deals get repriced or restructured (which is what happens when vendor due diligence wasn’t done properly). See the due diligence checklist for what buyers examine.
Sale and Purchase Agreement. The SPA is negotiated in parallel with due diligence. Expect it to be detailed and weighted toward protecting the buyer against undisclosed liabilities. Warranty and Indemnity Insurance is now standard in Australian mid-market PE transactions — it shifts the risk of a warranty breach from the seller to an insurer, and most PE buyers will require it as a condition of the deal structure.
Settlement. Funds transfer, you receive consideration, and the shareholders agreement for your retained equity takes effect (if applicable). The entire process from preparation to settlement typically runs 6–12 months. Shorter timelines happen; they’re the exception.
The Rollover Equity Question
This is the part of a PE deal most business owners under-think, and it deserves careful attention before you negotiate.
When you retain 20–30% equity, you’re no longer the sole shareholder of a business you control. You’re a minority shareholder in a PE-controlled entity, with your rights defined by a shareholders agreement you didn’t draft and your exit timeline determined by a fund that has its own investors to answer to.
The agreement will include drag-along provisions (allowing the PE firm to force a sale), board composition rules, good leaver and bad leaver provisions, and limitations on your ability to sell your retained stake before the firm is ready to exit.
None of this makes rollover equity a bad structure. For the right business in the right sector, a well-executed PE deal with a retained stake can produce a total return 2–3 times what a straight trade sale would have delivered. But go in with eyes open. The second bite is contingent on the business growing as the fund models it, the exit market being cooperative when the fund wants to sell, and the relationship between you and the fund remaining functional over several years (which — in fairness — it usually does, but not always).
Tax Considerations for a PE Sale
The CGT implications of a PE deal deserve a dedicated conversation with your accountant before you go to market, not after — because the structure you agree to has direct tax consequences.
The small business CGT concessions — including the 15-year exemption, the 50% active asset reduction, and the retirement exemption — can apply to a PE deal, but the eligibility criteria still apply. If you’re rolling equity, the portion you retain is generally not a disposal event for CGT purposes at the time of the deal. You crystallise the gain on the retained stake when the PE firm exits and you sell your shares. That timing difference can be useful — or it can create complexity, depending on your circumstances and age.
The normalised EBITDA calculation also matters more than you’d think, because PE firms pay on a multiple of a number — and the difference between a well-documented EBITDA and a poorly presented one can be $500,000 or more in deal price.
Get your accountant and your adviser involved early. The decisions made in the six months before a deal get started often matter more than the negotiations themselves.
Working With an Adviser
Private equity firms negotiate deals every week. Most business owners negotiate once in a lifetime. That information asymmetry is real, and it matters.
A corporate adviser who has run PE processes before will know which funds are active in your sector, what their typical terms look like, and where there’s room to move. They’ll also run a competitive process — approaching multiple funds simultaneously — which is the single most effective way to achieve a better outcome. A PE firm bidding against two other funds behaves differently from one that knows it’s the only option on the table.
If you’re considering a PE sale, get in touch to discuss whether your business is at the right stage and in the right sector to attract genuine interest — before investing time in a process that may not be the right path.