Private equity has discovered the plumber, the HVAC contractor, the veterinarian, the accountant, and the wealth manager. Firms that spent decades chasing software and healthcare are now paying serious multiples for businesses their owners never considered Wall Street material. They see something in these companies that many of the people who built them don't.
The owner and the buyer are looking at the same company and seeing different things: the owner sees what it does, and the buyer sees what it could become as an asset. Where an owner sees service calls, the buyer sees durable, recurring demand. Where the owner sees local competitors, the buyer sees a fragmented market waiting for whoever consolidates it. The buyer is studying customer acquisition cost, technician utilization, route density, the share of revenue under contract, how much of the business runs without the founder, how fast invoices become cash, and whether the operation could share a platform with three others like it. None of that appears on the truck or the sign out front. All of it appears in the price.
Now put numbers behind it. Picture a business earning $5 million of EBITDA. It depends heavily on the founder, the reporting is mediocre, a few personal expenses live in the books, two customers make up a third of revenue, and there is no real management layer beneath the owner. A buyer discounts every one of those facts and acquires the company at a modest multiple. Over the next five years the buyer professionalizes management, cleans up the numbers, builds recurring revenue, completes two tuck-in acquisitions, and sells a larger, more predictable company at a meaningfully higher multiple. The original owner reads about the sale and does the math with a sinking feeling. They sold his company for twice what they paid him.
The obvious question is why he couldn't have done that himself, and the honest answer is that he partly couldn't have. Much of the value gap comes from two different sources.
Part of the gap belongs to the buyer's structure rather than the buyer's brilliance. A private equity firm owns a portfolio, so an acquisition that goes sideways dents a fund's return instead of ending a family's livelihood. That capacity to absorb a mistake is what lets the firm finance growth aggressively and run the same playbook for the fortieth time. The founder, on the other hand, holds most of his net worth in this one company, has no portfolio to cushion an error, and gets one shot. Some of the advantage a buyer has is not a judgment on the owner at all. It comes from the buyer's ability to bear risks that would be irrational for a concentrated founder to take. Capturing that part of the gap requires a balance sheet built to survive being wrong, and a fully concentrated owner doesn't have one.
The other part of the gap was sitting inside the business the whole time, and claiming it requires discipline and investment rather than private equity ownership: clean financial statements, personal and discretionary expenses separated, processes documented instead of memorized, a second layer of management that can run the business without the founder, repeat service relationships formalized into contracts, and customer concentration worked down over years. None of it requires a fund behind it, though some of it requires real time and capital. Much of the resulting value belongs to the owner who moves first. And there are two ways to create value here: increase EBITDA, or increase the multiple a buyer will pay on the same EBITDA. The difference is not small: $5 million of EBITDA at six times is a $30 million company, and the same earnings at eight times is a $40 million company. The earnings haven't changed. What has changed is how durable, transferable, and risky a buyer believes those earnings to be. Owners naturally focus on the first. Far fewer manage the second deliberately. The multiple never appears on your income statement, and it is, literally, a discount you are offering without knowing it.
A buyer's bid, in the end, is a statement of belief that this collection of customers, employees, and cash flows would be worth more under different ownership than the price you'd accept for it. That belief should make an owner curious. What do they believe they can change, and which of those changes could you make while the company is still yours? The point is not to beat private equity at its own game, since half of that game is structural, built on risk bearing capacity no single company founder can match. The point is to know which half of the gap you can close yourself, and to close it years before a buyer appears, so that when one finally sits across the table, the value is something you built on purpose rather than something you discover in their offer.
Concentration has one more cost that doesn't usually get discussed: it doesn't only make the owner's portfolio riskier; it can make the business itself less valuable. An owner whose entire net worth rides on the company will rationally avoid certain bets: the expensive key hire, the acquisition, the new market, saying no to a merely acceptable offer. Building wealth outside the business is not a separate project from building value inside it. It creates the financial capacity to make better long term decisions in it.
Whether you ever sell is your decision, and selling is sometimes right. The question that shouldn't wait for a buyer is different. Is the discount your business carries today one you've examined and chosen, or one you've never priced?
Frequently Asked Questions
Why is private equity buying HVAC, plumbing, veterinary, and accounting businesses?
These industries share the characteristics that make a roll up work: recurring or repeat demand that holds up in a downturn, thousands of small independent operators in a fragmented market, pricing power at local scale, and operations that improve with better systems. A fund may buy one company as a platform, add smaller competitors as tuck-in acquisitions, and seek to sell the combined business at a higher multiple than the individual companies would have earned by themselves.
What is the difference between growing EBITDA and increasing the multiple?
EBITDA is a commonly used measure of operating earnings before interest, taxes, depreciation, and amortization.The multiple is what a buyer will pay for each dollar of those earnings, and it reflects the buyer's assessment of the company's growth prospects, durability, transferability, and risk. All else equal, growing earnings by ten percent increases value by roughly ten percent if the multiple holds. Moving from a six multiple to an eight multiple increases value by a third on identical earnings. Most owners manage the first number closely.
What lowers the multiple a buyer will pay for my business?
The common discounts are owner dependence, financial statements that don't survive scrutiny, personal expenses run through the business, customer concentration, no management layer beneath the owner, undocumented processes, revenue that is repeat but not contracted, and slow cash conversion. Each one is a risk the buyer is being asked to accept, and buyers price risk by paying less.
Can I raise my own multiple without private equity capital?
Yes, for the items that depend on discipline more than financing. Cleaning up the books, documenting process, converting informal repeat work into contracts, building a management layer, and reducing customer concentration are all within the owner's control, though some, like management depth, require investment. What you generally cannot replicate is the buyer's structural advantage, the ability to finance aggressively and absorb a failed bet, because that comes from owning a portfolio rather than a single company.
What is a quality of earnings review?
A quality of earnings analysis is the diligence a buyer runs to determine how much of reported profit is real, recurring, and transferable to a new owner. It tests revenue recognition, normalizes one time items, examines add backs, and scrutinizes personal expenses run through the company. Owners who have never been through one are frequently surprised by how much reported EBITDA does not survive it, and that reduction hits the sale price at the full multiple.
This content is for educational purposes only and does not constitute legal, tax, accounting, valuation, or investment advice. Business valuation outcomes depend on individual circumstances, industry conditions, and deal structure. Consult qualified legal, tax, accounting, valuation, and financial professionals before acting.
