For single owners and families who’ve built their company to $5M–$35M in annual revenue, a two-step exit through private equity can dramatically outperform a traditional sale.
You’ve spent years—maybe decades—building your business. Revenue has climbed into the $5 million to $35 million range. You’re profitable. You’re tired. And you’re starting to think seriously about what comes next.
If you’re like most family business owners, you assume there’s one path forward: find a buyer, negotiate a price, hand over the keys, and walk away. Maybe you’ll get 4x EBITDA if you’re lucky. That’s what the market pays for businesses your size.
But what if there was a way to turn that 4x into something closer to 8x—or more?
There is. And the math isn’t complicated. It just requires understanding how private equity firms make money, and positioning yourself to share in that upside.
The Traditional Exit: Good, But Limited
Let’s start with the baseline. Say you own a business doing $20 million in annual revenue with a 15% EBITDA margin. That’s $3 million in EBITDA.
In a traditional sale to a strategic buyer or smaller PE firm focused on your segment, you might receive 4x EBITDA:
Traditional Sale:
- EBITDA: $3,000,000
- Multiple: 4x
- Sale Price: $12,000,000
You walk away with $12 million (before taxes). That’s a meaningful outcome for a lifetime of work.
But here’s what that calculation misses: the buyer isn’t paying 4x because that’s what your business is worth. They’re paying 4x because that’s what they can afford to pay while still generating the returns their model requires. The actual value they expect to create—through growth, operational improvements, and eventual sale at a higher multiple—is substantially greater.
The question is: why should they capture all of that upside?
The Two-Step Exit: How the Math Changes Everything
Private equity firms don’t buy companies to hold them forever. They buy platforms, grow them (often through acquisitions), improve operations, and sell them—typically within 4 to 6 years—to larger buyers who pay premium multiples for scaled businesses.
Here’s the opportunity: instead of selling 100% today at 4x, you sell a controlling interest to PE while retaining meaningful equity. You continue running the business through the growth phase. And when the PE firm sells the company at a higher multiple, you participate in that second transaction.
Let’s run the numbers on the same $3 million EBITDA business:
Step 1: The Initial Transaction
You sell 80% of your company to a private equity firm at 4x EBITDA, retaining 20%.
| Component | Calculation | Amount |
| Company EBITDA | $3,000,000 | |
| Valuation Multiple | 4x | |
| Total Company Value | $3M × 4 | $12,000,000 |
| Your Proceeds (80% sold) | $12M × 80% | $9,600,000 |
| Your Retained Equity | 20% of company | (valued at $2,400,000) |
You’ve now taken $9.6 million off the table—real money, in your account—while maintaining a 20% ownership stake in a company that’s about to get serious resources for growth.
Step 2: The Second Exit
The PE firm executes its playbook. They bring operational expertise. They make add-on acquisitions. They professionalize the management team. They invest in sales and marketing. Over the next several years, the business grows.
Let’s assume modest growth—EBITDA increases from $3 million to $5 million through a combination of organic growth and tuck-in acquisitions. (This is conservative; many PE-backed platforms double or triple.)
When it’s time to exit, the PE firm sells to a larger strategic buyer or bigger PE fund. Scaled, professionalized businesses with proven management command premium multiples. Instead of 4x, the exit happens at 10x EBITDA:
| Component | Calculation | Amount |
| Company EBITDA at Exit | $5,000,000 | |
| Exit Multiple | 10x | |
| Total Company Value | $5M × 10 | $50,000,000 |
| Your Proceeds (20% stake) | $50M × 20% | $10,000,000 |
Your Total Outcome
| Transaction | Your Proceeds |
| Step 1: Initial Sale (80%) | $9,600,000 |
| Step 2: Final Exit (20%) | $10,000,000 |
| Total | $19,600,000 |
Compare that to the traditional exit:
| Exit Strategy | Total Proceeds | Difference |
| Traditional Sale (100% at 4x) | $12,000,000 | — |
| Two-Step PE Exit | $19,600,000 | +$7,600,000 (+63%) |
And that’s with conservative assumptions. If the business grows to $6M EBITDA and exits at 10x, your 20% is worth $12 million—bringing your total to $21.6 million, nearly double the traditional outcome.
Why the Multiple Expansion Happens
You might wonder: why would anyone pay 10x for a business that was worth 4x just a few years earlier?
The answer lies in what larger buyers value:
Scale matters. A $5M EBITDA business is a platform. A $50M EBITDA business is a strategic asset. Larger companies trade at higher multiples because they’re more stable, more diversified, and more attractive to institutional buyers.
Risk is reduced. PE-backed companies typically have stronger management teams, better financial reporting, documented processes, and proven growth trajectories. Buyers pay more for reduced risk.
Strategic value increases. A consolidated platform with multiple locations, service lines, or customer segments offers synergies that standalone businesses can’t provide.
Buyer pool expands. At 4x EBITDA, your buyers are smaller PE firms and regional strategics. At 10x EBITDA, you’re attracting large PE funds, public companies, and institutional investors with access to cheaper capital and longer time horizons.
This multiple expansion isn’t hypothetical—it’s the core of the private equity business model. PE firms exist to buy at lower multiples, grow companies, and sell at higher multiples. The opportunity for family business owners is to participate in that journey rather than stepping off at the first stop.
Why Now? The Market Has Shifted in Your Favor
The math above works in any environment. But current market conditions make this strategy particularly attractive:
Private equity is sitting on record capital. U.S.-based PE funds hold approximately $880 billion in dry powder—committed capital waiting to be deployed. More than 40% of that capital has been waiting for over two years, creating pressure on fund managers to find quality investments. That pressure translates into competitive pricing for sellers.
Financing costs have dropped. After years of elevated rates, the cost of PE middle market term loans has fallen by roughly three percentage points from recent peaks. Lower financing costs improve buyer returns, which means they can pay more for your business while still hitting their targets.
Add-on activity is surging. Over 75% of PE buyout activity now consists of add-on acquisitions to existing platforms. Firms are actively hunting for businesses in the $5M–$35M revenue range to serve as either platforms or additions to existing portfolios. Your company is exactly what they’re looking for.
The lower middle market is underserved. While mega-funds chase billion-dollar deals, smaller PE firms have raised substantial capital specifically for the lower middle market. Competition for quality family-owned businesses is intense.
What This Means at Different Revenue Levels
The math scales. Here’s how the two-step exit plays out across the $5M–$35M revenue range, assuming 15% EBITDA margins, an 80/20 split, growth to 1.67x original EBITDA, and a 10x exit multiple:
| Annual Revenue | EBITDA | Traditional Exit (4x) | Two-Step Exit | Increase | |||||
| $5,000,000 | $750,000 | $3,000,000 | $4,900,000 | +63% | |||||
| $10,000,000 | $1,500,000 | $6,000,000 | $9,800,000 | +63% | |||||
| $15,000,000 | $2,250,000 | $9,000,000 | $14,700,000 | +63% | |||||
| $20,000,000 | $3,000,000 | $12,000,000 | $19,600,000 | +63% | |||||
| $25,000,000 | $3,750,000 | $15,000,000 | $24,500,000 | +63% | |||||
| $35,000,000 | $5,250,000 | $21,000,000 | $34,300,000 | +63% |
At the higher end of this range, you’re looking at $13 million in additional proceeds—enough to transform generational wealth.
A Real-World Example
Consider what happened when the owner of an pain management clinic took this approach. His business had an adjusted EBITDA of $5.1 million. He sold 80% to a PE firm, receiving $32 million upfront while retaining 20%.
Over the next six years, the PE firm acquired five complementary businesses and invested in operations. When the combined platform sold to a national hospital system at 11.5x EBITDA, the deal was worth $357 million.
The owner’s remaining stake—diluted to 14% through the add-on acquisitions—was worth $48 million.
His total proceeds: $80 million.
What would a traditional 4x sale have brought? Roughly $20 million.
The two-step approach delivered four times the outcome.
What You Give Up (And What You Gain)
This strategy isn’t free. Here’s what you’re committing to:
Continued involvement. PE firms want operators who know the business. You’ll likely remain as CEO or in a senior role for 2–5 years, with meaningful performance expectations.
Loss of control. Selling a controlling interest means you’ll have partners—and a board. Major decisions will require approval. This is a significant shift for owners accustomed to running things their way.
Uncertainty on the second exit. Your 20% stake is only worth something when the PE firm sells. If the business underperforms, if market conditions deteriorate, or if the exit takes longer than expected, your outcome could be less than projected.
Dilution risk. If the PE firm makes acquisitions using equity, your ownership percentage may decrease. (Though the value of the overall company typically increases faster than your stake dilutes.)
In exchange, you get:
Immediate liquidity. Most of your wealth is extracted on day one, dramatically reducing your personal risk.
Professional partners. PE firms bring capital, expertise, and networks that can accelerate growth in ways you couldn’t achieve alone.
Upside participation. You stay in the game for the value creation phase that typically generates the highest returns.
A defined path. Instead of wondering when and how you’ll exit, you have a clear timeline and a partner committed to getting you there.
For many family business owners approaching retirement, this combination—most of the money now, meaningful upside later, and a few more years of engagement with professional support—is exactly the right fit.
Is This Right for You?
The two-step PE exit works best when:
- You’ve built a business in the $5M–$35M revenue range with healthy EBITDA margins
- You’re willing to stay involved for 3–5 more years, but want liquidity now
- Your business has growth potential that you haven’t fully captured—due to capital constraints, lack of M&A capability, or operational limitations
- You’re comfortable with partners and can work within a more structured governance environment
- You care about the ultimate outcome, not just the immediate check
It’s not right for everyone. If you’re burned out and need to step away immediately, a full sale makes more sense. If your business is declining or has limited growth potential, the second bite won’t be as sweet. And if you can’t imagine reporting to a board or hitting performance targets, the cultural shift will be painful.
But if you’ve built something real, want to maximize its value, and are willing to see it through, the two-step approach offers something a traditional sale can’t: the chance to participate in the outcome your years of work actually made possible.
The Window Is Open
Private equity firms are actively seeking family-owned businesses with $5M–$35M in revenue. They have capital to deploy, timelines to meet, and a proven playbook that requires companies exactly like yours.
The difference between a $12 million exit and a $20 million exit isn’t luck. It’s structure.
The question isn’t whether your business is valuable. You’ve already proven that. The question is whether you’ll capture all of that value—or leave a significant portion on the table.
If you’re planning to exit in the next three to five years, the time to explore this option is now. Not because you need to move fast, but because understanding your options gives you leverage—and the best deals are structured long before they close.
Your business took years to build. Your exit deserves the same thoughtfulness.
This article is published and the property of Penn Valley Group Southeast for informational purposes only and does not constitute financial, legal, or tax advice. The examples and projections shown are illustrative, and actual outcomes will vary based on specific circumstances, market conditions, and business performance. Business owners considering a partial sale should consult with qualified M&A advisors, attorneys, and tax professionals.