Preparing a First-Time Seller for a Private Equity Recapitalization Without a Banker

The Situation

The company was a successful outsourced IT consulting and managed services firm, founder-led and growing, when a private equity firm approached the owners directly with a proposal to acquire a majority stake and bring the company its first financial sponsor. The founders would sell a majority of the business, roll a portion of their equity into the new holding company, and continue to run it.

Because the buyer came to them, there was no investment banker and no competitive process. The founders were negotiating one-on-one with a sophisticated sponsor, they had never been through a transaction, and they had their own view of what adjusted EBITDA should be. Their M&A attorney recognized that they needed transaction finance expertise on their side of the table and referred them to Buxbaum.

The Challenge

A proprietary deal with a single buyer removes the discipline that a competitive process imposes on the counterparty. The sponsor’s diligence team would be the only outside party testing the numbers, and it would do so from its client’s point of view. The founders needed to enter that process with:

• An adjusted EBITDA they could defend, rather than a founder’s list of add-backs the buy-side team would take apart
• Books and cash records that a diligence team could get comfortable with quickly, since the buyer’s advisors would be fully engaged within a week
• A clear understanding of what the deal actually meant for them financially, including the value of the equity they were rolling into the sponsor’s new entity
• Working capital and debt-like item definitions that protected them at closing
• A purchase agreement whose financial terms matched the accounting reality of the business

None of that existed when we were engaged, and the buyer’s clock was already running.

What We Did

Adjusted EBITDA review and defense. The CEO had taken a first pass at the EBITDA adjustments. Rather than replace his work, we reviewed it the way the buy-side team would: testing each adjustment for support, recurrence, and whether it would actually disappear under new ownership. We refined the list, strengthened the documentation on the items that would hold, and set aside the ones that would not. The result was a set of adjustments the founders could explain with confidence and we could defend in detail on diligence calls, which we did.

Proof of cash and foundational diligence work. Knowing the buy-side team would begin work within a week, we built the foundation they would ask for first. We prepared a proof of cash reconciling reported revenue and expenses to bank activity across the historical period, which is the fastest way for a diligence team to gain confidence in a company’s books. We also selected a sample of customer invoices and vendor transactions, tested them against the founder’s adjustments and the underlying records, and uploaded the support to the data room before the buyer requested it.

Rollover equity scenario modeling. The founders were receiving equity in the sponsor’s new holding company alongside their cash proceeds, and they asked us to help them understand what that equity might be worth. We built scenario models projecting the value of their rollover stake across a multi-year hold, under a range of growth, margin, leverage, and exit multiple assumptions. That gave the founders a grounded view of the second half of their consideration, which is often the part of a recapitalization sellers understand least.

Proceeds analysis. We modeled the founders’ cash proceeds at closing under the proposed terms, including the effects of the working capital adjustment, debt-like items, transaction expenses, and escrow, so they could see what the headline price actually meant in dollars received.

Working capital, net debt, and the purchase agreement. We reviewed the working capital target and the buyer’s proposed debt-like items, analyzed the company’s historical working capital to support a defensible peg, and worked with the founders’ attorneys to ensure that every accounting-related term in the purchase agreement was defined correctly. We prepared the financial exhibits to the agreement, including the working capital calculation, the illustrative closing statement, and the accounting principles that govern the post-closing true-up, so that the documents matched how the business actually keeps its books.

The Result

The founders entered diligence with a defended adjusted EBITDA, a proof of cash, and tested support already in the data room, so the buy-side team spent its time confirming rather than challenging. The adjustments held. The working capital and net debt terms were negotiated from the company’s actual historical balances, and the purchase agreement’s financial provisions were documented to protect the sellers through the post-closing adjustment.

Just as important, the founders understood the deal they were signing: what they would receive in cash, what their rollover equity could be worth, and how each term of the agreement affected both. They made an informed decision on a transaction that will define the next chapter of their company.

Why It Matters

Founders approached directly by a private equity buyer are in a specific kind of exposure. There is no banker running a process, no competing bidders to discipline the buyer’s terms, and no one on the seller’s side who has done this before. The sponsor’s team, by contrast, does this every week.

That imbalance shows up in predictable places: add-backs that get rejected because they were asserted rather than documented, working capital pegs set to the buyer’s advantage, debt-like item lists that quietly reduce proceeds, and rollover equity that sellers accept without understanding its value. Each is addressable, and each is far easier to address before the buy-side team engages than after.

This engagement also shows the role an M&A attorney plays in protecting a client. Recognizing that legal representation alone was not enough, and bringing in transaction finance support at the start, is what put the founders on equal footing.

If a buyer has approached you directly and you are weighing a sale or a recapitalization, let’s talk about what your adjusted EBITDA looks like with support behind it and what the deal would actually mean for you.