SELLING YOUR COMPANY TO PRIVATE EQUITY AS PART OF A ROLL-UP: WHAT YOU NEED TO KNOW
- Sri Malladi
- Mar 19
- 5 min read
Private equity (PE) roll-ups have been picking up steam across multiple industries.
Over the past year, we’ve seen significant activity in IT services, medical practices, building systems (HVAC, building security), and accounting firms.
Last year, we advised a PE firm on a four-company roll-up, giving us a front-row seat to the opportunities and challenges sellers face in these transactions. Prior to that, we worked with a larger company, helping them with roll-ups in the building safety and security space.
If you’re thinking about selling your company as part of a roll-up, understanding how these deals work—and how PE firms think—can put you in a much stronger position. Here’s what you need to know.
Why PE Firms are doing roll-ups
Roll-ups are a common PE strategy for consolidating fragmented industries.
The ultimate goal is to create a larger, more valuable business by acquiring multiple smaller companies, integrating them, and ultimately exiting at a higher multiple.
The appeal for PE firms comes from several angles:
Instead of building a business from scratch, acquiring multiple companies at once accelerates expansion and creates rapid market share growth
Back-office functions, technology platforms, and purchasing power can be consolidated to cut costs and create operational efficiencies. These savings flow straight to the bottom line.
A larger, well-integrated company commands a higher valuation than individual smaller businesses. Going from acquiring five firms at (say) 6x EBITDA, and being able to exit them at (say) 8x EBITDA creates a valuation bump just by way of increasing scale
Roll-ups often create opportunities to introduce new services to an existing customer base. The cross sell and service expansion generates revenue synergies.
If a PE firm is knocking on your door, they likely see your company as a piece of this bigger puzzle.
What PE Firms look for in a roll-up target
Not every business is a fit for a roll-up. The most attractive companies tend to have a few key characteristics:
Profitable and scalable – A solid business model with healthy margins and room to grow.
Recurring or predictable revenue – Subscription models, long-term contracts, or sticky customer relationships make a company more appealing (this is why businesses that can generate recurring revenues from the same customers through monthly or annual renewing subscriptions are especially attractive for PE firms)
Strong management team – Whether you plan to stay on or transition out, PE firms want leadership in place to help with integration.
Synergies with other acquisitions – The best targets complement the other businesses in the roll-up, whether through geography, customer base, or service offerings. Sometimes the PE firm starts with a larger platform acquisition and complements that with other smaller acquisitions over time.
Diversified customer Base – Heavy reliance on a small number of customers can be a red flag.
Clean financials & operations – PE firms move quickly, and businesses with well-organized books and processes are easier to integrate.
If your business checks these boxes, you’re likely to get interest from multiple PE firms.
What to expect in the process as a seller
1. Valuation & deal structure
Valuation in a roll-up often works differently than in a standalone sale. Since PE firms aim to exit at a higher multiple later, they often buy at a more modest multiple upfront. Some things to consider:
You may be offered a mix of cash, earnouts, and equity in the new entity.
The structure will depend on the PE firm’s strategy and how confident they are in post-roll-up growth.
If other companies in the roll-up are getting similar deals, there may be limited room for negotiation.
Tip: If multiple buyers are interested, it gives you leverage to negotiate a better structure. If you start to receive offers from a small handful of PE firms, also consider if the valuation may improve by running a sell-side process (with the help of an advisor) who can help you increase the valuation by making the process competitive.
2. Due Diligence: What PE Firms will dig into
Due diligence can be intense. PE firms are buying multiple businesses at once, so they want to minimize surprises. Expect a deep dive into the below (this is not an exhaustive list):
Financials – Historical performance, revenue trends, profitability, and any one-time adjustments.
Customer & supplier sontracts – Are they transferable? Are there risks in concentration?
Employee agreements – Retention, benefits, and potential post-sale restructuring.
Technology & systems – If the roll-up has a specific tech stack, they’ll want to assess how well your systems integrate.
Legal & compliance – Past disputes, outstanding liabilities, and industry-specific regulations.
3. Integration & transition
Once the deal closes, the real work begins. This is where many roll-ups struggle. Common challenges include:
Cultural alignment – Bringing together different company cultures can create friction. If the PE is trying to merge your business into an existing platform acquisition, make sure that you and your team gels well with the current leadership team.
Process & system integration – Inconsistent software, reporting structures, and workflows can slow down synergies. These can usually take a few months to resolve, so be prepared to work through these challenges with the PE firm.
Leadership & employee transition – If roles shift or redundancies arise, how these changes are handled impacts long-term success. Be aware that the PE firm will want to reduce costs (usally within 6-12 months) by reducing redundant systems and roles, so there are usually some head count reductions across the platform.
If you plan to stay on post-sale, getting clarity on your role and decision-making authority early on can prevent issues down the road.
Lessons Learned for Sellers
After advising on roll-up transactions and having a front row seat to how those are integrated, here are my biggest takeaways for business owners:
Understand your valuation & leverage – Roll-up deals often come with structured payouts (earnouts, equity, etc.), so be clear on what’s fair. If you have multiple buyers, use that to your advantage.
Prepare your financials & documentation – Messy books or missing contracts can slow things down and give the buyer reasons to negotiate downward. This is important in any M&A sale process, but especially so in a roll-up. A PE firm that is energized to move forward quickly can halt the process if they find that the financials and the essentials (contracts, employment agreements etc.) are messy.
Expect heavy due diligence – PE firms are moving fast and want zero surprises. Having everything ready upfront makes the process smoother.
Negotiate earnouts & equity carefully – If part of your payout depends on future performance, ensure the targets are achievable.
Plan for the transition – Whether you’re staying or leaving, think about how your team and operations will be affected.
Final thoughts
Selling to a PE-backed roll-up can be a great way to exit, but it requires careful preparation. Knowing what PE firms are looking for, how they structure deals, and where deals tend to get stuck can help you maximize value and avoid pitfalls.
If you’re considering selling, it’s worth having an early conversation about your options. We’ve been on both sides of these deals and can help you think through the right approach for your business.
