Selling to Private Equity: When the Deal Is Just the Beginning

Business Law: 30 April 2026

Author: Alister Bayston - Our People

Before agreeing to a private equity deal, it’s crucial to understand how post‑completion obligations can shape the value you ultimately receive.

Selling your business to a private equity firm can be an exciting prospect, and for many owners it represents the culmination of years, sometimes decades, of hard work.

The headline sale figure can be transformative. But a successful transaction is not always the end of the story. In many cases, realising the full value of the deal depends on what happens after completion, including how the business performs, how the transition is managed, and whether key obligations are met.

In this case study example, we look at a scenario we frequently advise on: a business owner selling to a private equity group pursuing a buy-and-build strategy (and aggregator), where multiple businesses in the same sector are acquired and consolidated under a single group. The approach is common, but the risks are often underestimated.

The Deal Structure: Deferred Value and Ongoing Obligations

Our client - the owner of a specialist technical services business - received an offer from a well-funded private equity group. The initial cash consideration was based on a significantly higher multiple than it would have sold for before the pandemic. A third of the consideration was deferred, but included an uplift if our client achieved the following conditions:

• Remain employed by the acquiring group for three years post-completion;
• Retain a minimum level of qualified technical staff throughout that period; and
• Achieve a specified EBITDA target across each of the three financial years.

On paper, the structure is designed to align incentives - to ensure the seller remains motivated and the business continues to perform. In practice, it creates a set of risks that a seller cannot fully control, regardless of how hard they work or how capable they are.

The Key Problem: Managing Without Ownership

Our client had spent years building the business, shaping its culture, retaining staff and driving performance through strong personal relationships. Legally, however, they were now an employee. Decisions they had once made directly, including pay, hiring, investment and client relationships, were now subject to approval from a new owner with different priorities, expectations and operating style.

This is not a criticism of private equity as a model. It is simply a reflection of a structural reality. A private equity group managing a portfolio of acquired businesses cannot replicate the personal investment, and personal relationships of an owner-operator. Decisions are made at a distance, through financial reporting and management accounts rather than day-to-day presence. The relationship between leadership and staff - which in an owner-managed business is often one of genuine loyalty built over many years – can begin to feel transactional.

Risk One: Retaining Qualified Technical Staff

The deferred consideration was conditional on maintaining a minimum headcount of highly qualified technical staff. In a specialist sector, these individuals are not interchangeable. They are hard to recruit, expensive to retain, and often stay with a business because of who they work for, not just what they are paid.

Staff come and go in the ordinary course of business. Loyalty to a business owner is often greater than to large corporations, which presents a challenge to aggregators trying to retain talent. Our client had anticipated this risk but found himself unable to respond in the way he would have done previously, due to the new ownership structure. Replacing highly specialised staff with individuals of equivalent qualification and experience is challenging, and our client found that retention was dropping below the minimum staffing threshold, through no fault of his own.

Risk Two: Hitting an EBITDA Target You No Longer Control

The EBITDA targets built into the deferred consideration mechanism were based on projections agreed at the time of sale. However, those were based on growth phase which led to a higher than usual multiple on the first tranche payment. Management charges, shared service costs and group insurance premiums can hit the business's accounts, directly eroding EBITDA over time.

In similar transactions, a business may be required to absorb a proportion of the group's central overhead costs - a common feature of buy-and-build consolidations. The result was an EBITDA figure that, by year three, was tracking materially below the threshold required to unlock the uplifted consideration in full. This is unfortunately a common aspect of deals which have consideration split into tranches. They are ambitious targets to hit, and if they are not met, then the Private Equity group ends up getting a discount on the overall sale.

Our client had the option of extending the trading period by another 12 months to try to achieve both the staff level and the EBITDA conditions. However, for personal reasons related to his new role as an employee, he declined to take that opportunity. Like a game show competitor, he elected to take home the prize in hand, rather than keep playing on.

What Good Legal Advice Looks Like

This case highlights the risks of deferred consideration structures. Earnouts and performance-linked uplifts are a legitimate and often commercially sensible mechanism. The lesson is that a seller must understand, in precise terms, what they are being asked to commit to - and what lies outside their control. If a valuation has been made during a growth phase, the value (and targets to hit) may look very different to the historical average performance of the business.

Robust legal advice in this context should address:

• How EBITDA is defined and calculated (and whether group recharges are excluded).
• What protections exist if the acquirer takes actions that impair performance in the running of the business?
• What constitutes a breach of the staffing conditions and how they are measured? Is there an allowance of time to rectify a breach?
• What dispute resolution mechanism applies if seller and buyer disagree on whether targets have been met?

Whether there are change of control or material change protections that allow the seller to exit the earnout period without penalty in certain circumstances.

These are not peripheral concerns. They go to the heart of whether the seller will receive the value they believe they have agreed to at the time of making the deal.

Summary

Selling a business to private equity can be an excellent outcome. But it requires a clear-eyed understanding of what the sale completion (over months or years) means - not just legally, but practically. The moment you cease to be the owner, you cease to have the authority that made you effective at growing the business. If part of your return depends on results you can no longer adequately influence, that is a risk that must be priced, protected against, and - wherever possible - negotiated into the transaction documents themselves.

If you are contemplating a sale, whether to private equity or any other buyer, and the proposed structure includes any element of deferred or performance-linked consideration, we strongly recommend taking specialist legal and financial advice before signing a Terms Sheet. The time to negotiate protections is before the deal is signed - not after.

We are here to help you plan out the best way to approach this significant event in your business journey. Get in touch with us on (03) 8600 6000.