A Private Equity Firm Just Made an Offer. Now What?
Understanding the offer, your goals and the private equity (PE) firm will put you on the road to a successful deal.
When assessing a potential deal, three key factors require attention: a comprehensive letter of intent (LOI), your financial, personal and business objectives, and your level of comfort with the buyer.
Blueprint for a Deal
Once you decide to explore a potential transaction, the PE firm will begin due diligence, requesting documents like historical financials, projections, and customer, product, and supplier data. The goal is to reach a signed LOI, which serves as a blueprint for the deal. Although non-binding, the LOI contains binding provisions, making it essential to have a transaction lawyer before signing. The LOI generally precludes the business owner from talking to other potential buyers and typically fixes the business price, although the buyer can change it based on due diligence.
Business owners have the most leverage before signing the LOI. Sellers should ensure the valuation is worthy of a preemptive offer. While price is tempting to focus on, scrutinizing other transaction aspects is equally important.
• Rollover Equity: Most business owners will roll some equity into the acquiring company. This may be a good investment, but it’s essential to understand how and when the rollover equity will be taxed and the nature of the equity received.
• Tax Consequences: Buyers typically want to buy business assets, while sellers prefer to sell shares, impacting tax implications. A stock sale is usually taxed as capital gains, while asset sales are often taxed as ordinary income.
Know Your Buyer
The acquiring firm is crucial. PE firms vary, each with expectations for acquired companies. Some have dedicated funds, while others, called independent sponsors, find companies, lock them with an LOI and then raise money to buy them. This can extend the deal timeline.
Sizing Up Your Partner
After the deal closes, you could work with your acquirer for an extended period. Ensure the firm has the expertise you need. Track records are important: how has the PE firm and its funds performed? Who are the people leading your transaction, and what is their track record? References are crucial. If the firm won’t connect you, that’s often a red flag.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “A private equity firm just made an offer. Now what?” by Andrew Oshman, Private Business Advisory, July 28, 2025
