If you run a mid-market business in consumer, beauty, or healthcare, private equity has already noticed you. But knowing what PE evaluates is what separates a process that works from one that falls apart.
If you run a company in the EUR 5–50M revenue range in consumer, beauty, or healthcare, you are in the sweet spot for mid-market private equity. You have probably been approached, or know someone who has. But most founders have only a vague sense of what PE actually evaluates. The gap between "PE is interested" and "PE will write a cheque" is where most processes fall apart. This is what they are actually looking at.
PE does not take your reported EBITDA at face value. They will normalize it. This means stripping out one-offs, owner compensation above market rate, related-party transactions, and anything else that won't survive day one of fund ownership. Then they stress-test what remains. Is the margin sustainable or was it inflated by a one-time procurement win? Is the revenue mix shifting in a way that will compress margins? Did a supplier give you a favour that no longer applies? They want EBITDA that is repeatable, defensible, and growing. There is another reason PE scrutinises earnings quality that founders rarely consider: leverage. PE funds typically finance acquisitions with significant debt — often three to four times EBITDA. That debt needs to be serviced from the company's cash flows. If the EBITDA the fund underwrote turns out to be overstated, the debt coverage ratio deteriorates and the investment thesis breaks. This is why PE is more demanding on earnings quality than a strategic buyer — they are not just valuing the business, they are sizing the debt against it.
A founder who built a solid revenue business with strong EBITDA margins but where half that margin comes from a one-time supply contract will not get the same valuation as one where the margin is structural. PE is buying the cash flows they can rely on over a typical four-to-six-year hold period. Everything else gets discounted or written off entirely. I've seen deals fall apart in the final stages because of this. A business that looked solid at first glance turned out to have margins that were not repeatable. The valuation gap between structural and non-structural margins can represent a significant share of enterprise value. This is worth thinking through before any process starts. For more on how to present your earnings cleanly, see how to calculate adjusted EBITDA.
Not all revenue is equal. Recurring revenue beats repeat revenue beats one-time transactions. A beauty brand that does the majority of revenue through a subscription product is structured completely differently from one that does the majority through wholesale to a few major retailers. PE will model both scenarios differently because they carry different risks.
Customer concentration is a red flag. A common practitioner threshold is 15–20% of revenue from a single customer — once you cross that range, PE will spend significant time stress-testing what happens if that customer leaves. They will want to know the contract length, renewal probability, and whether you have visibility into their buying plans. A business where one customer represents a quarter or more of revenue is automatically riskier and gets a discount. In healthcare, the equivalent is reimbursement concentration. If a large share of your revenue depends on a single payer or reimbursement code, PE sees exposure. They will either price it in, structure around it with earnouts, or pass entirely.
The founder's job before a process is to know these numbers cold. If you have a concentrated customer, do not hide it. PE will find it in diligence anyway. What matters is whether you have a story about how that concentration is de-risking or how the fund can diversify the base. A customer that is expanding their usage of your product and signing longer contracts is different from one you're holding on to with favourable terms. PE can tell the difference.
This is the test that catches most founder-led businesses. If you are the business, PE sees risk. This means the founder is managing the key client relationships, making all the strategic product decisions, leading supplier negotiations, and is the only person who really understands the margins. PE does not want to own that liability. In practice, most PE funds will require you to stay for one to three years post-close, with earnouts and retention tied to performance. But their model needs to show that the business *can* operate without you — that you are valuable but not indispensable. If you cannot take a month off without revenue dropping or decisions getting made badly, that is a problem PE will price in or structure around with extended earnouts and heavier retention terms.
The good news: this is fixable. But it takes time. You need to build a management layer that can operate independently. This means hiring a COO or operations lead who owns the P&L. It means documenting the processes so the next person can follow them. It means stepping back from day-to-day client calls. In my experience, this transition typically takes 12–18 months when done properly. Founders who resist it often face materially lower valuations — PE will either discount the price or shift more of the consideration into earnouts. PE will ask hard questions here: who runs the business if you leave? Can that person manage growth from EUR 15M to EUR 25M? Do they have the strategic skills or just operational competence? These are not theoretical questions in a PE diligence. They determine earnout structures and retention bonuses.
PE is not buying your business as-is. They are buying the right to execute a value creation plan. This means they need to see identifiable levers that will drive growth and margin expansion. In a EUR 10M consumer business, those levers might be geographic expansion into Germany or the Netherlands, a new product line extension, pricing power from a strengthened brand, operational efficiency from consolidating suppliers, or bolt-on acquisitions to reach critical mass in a specific channel.
A company that is already optimized on all dimensions is less attractive than one with clear upside the fund can execute on. If you have been thinking about international expansion but never prioritized it, that is a lever PE can pull. If your unit economics are strong but your marketing efficiency is below benchmark, that is operational upside. If you have never done price testing and your products are conservative on margin, that is pricing power PE can unlock.
The exercise founders should run before a process: what is growth from today to year three without PE? EUR 10M to EUR 15M? Now assume a professional operator and capital—what does year three look like? EUR 18M? EUR 22M? The gap between those two scenarios is where the fund's value creation comes from. If there is no clear gap, PE will pass.
PE-ready does not mean a perfect business. It means a business that can survive scrutiny. It means clean financials that are auditable or have been audited. It means a management team that can operate post-close without the founder. It means a business plan with assumptions you can defend in detail. It means a clear story about where value creation comes from and a realistic path to get there.
Most companies at EUR 5–30M are not PE-ready not because the underlying business is bad, but because they have never had to present it through this lens. The financial records might be a mess. The management team might be the founder plus three people who do everything. The growth plan might be "we'll do more of what we're doing." These gaps do not kill a deal, but they do kill value. PE will either ask for 18 months of proof before committing, or they will structure earnouts that force the founder to hit targets before getting paid.
The time to start this work is 12–18 months before a process. There is an operational layer: get a good CFO or bookkeeper to clean up the financials, hire a COO or build a management layer, document processes, and get audited numbers if you can. This is the foundation — without it, no process will go well.
But there is a strategic layer that sits above the operational one, and it is the layer most founders miss. Which PE funds are the right fit for your company — and how do you get in front of them on your terms, not theirs? How do you position the business so the value creation story is obvious to the buyer? How do you structure a process that creates competitive tension rather than a bilateral negotiation where the fund holds all the leverage? How do you negotiate the LOI so the earnout, the retention terms, and the valuation reflect the true value of what you built? These are not questions your CFO or your accountant can answer. They are the questions an independent M&A advisor exists to answer — someone who has been on the other side of these processes and understands how PE funds think, model, and negotiate. When PE comes calling and you are ready on both layers, the conversation is about valuation and terms, not about whether the business is investable.
It also helps to understand what the process looks like from the other side. Once a PE fund is seriously interested, they will issue a Letter of Intent — a non-binding offer that outlines the proposed valuation, deal structure, and key terms. The LOI typically includes an exclusivity period — the length varies by deal complexity and fund, but is generally long enough for the fund to complete confirmatory due diligence — during which you agree not to talk to other buyers. During that phase, you will go through management presentations — structured sessions where you and your team present the business plan, answer detailed questions, and demonstrate that the management layer can operate independently. Some funds also commission a formal management due diligence, conducted by a third-party consultant, to assess leadership capability and organisational depth. These steps are where the preparation described above gets tested in practice.