Ten years ago, the buyer universe for a $5M-EBITDA essential services business was three or four regional PE funds and a handful of strategics. Today it is dozens of independent sponsors, search funds, family offices, holdcos, and traditional funds — all of whom describe themselves in nearly identical language.
The pitch decks look alike. The differences show up after LOI. Two questions cut through most of the noise.
First: 'Is your capital committed?' A traditional fund has already raised the equity. An independent sponsor typically raises the equity deal-by-deal after LOI. Neither is inherently better — committed capital closes faster and re-trades less; independent sponsors often move with more urgency and more founder-friendly terms — but you should know which you are dealing with, and price it into your process.
Second: 'Who will actually run this business on day one?' A fund that intends to keep you as CEO for three years is a different transaction than one that has an operator already lined up. A holdco that will absorb the business into a shared services model is a different transaction again. Ask the question directly. The answer changes what happens to your team.
There is no single right answer to what kind of buyer you should sell to — the right answer depends on what you want after close. But the wrong outcome is signing an LOI without knowing which of these you're actually signing with.
