The PE Playbook: 9 Attacks Private Equity Use to Lower Your Valuation. How Entrepreneurs Can Defend Themselves
Receiving inbound interest from private equity means you're running a strong, valuable company, take a moment to pat yourself on the back. Most entrepreneurs never reach this point.
These groups know how to spot profitable businesses with growth potential. They also know how to negotiate aggressively. Their objective is simple. They want to acquire strong companies at favourable prices and produce attractive returns for their investors.
This creates a gap between what a founder expects and what private equity wants to pay. The tools used to close this gap tend to follow a predictable pattern. Once you understand the playbook, you can defend your position and prevent unnecessary valuation pressure.
Below are the nine most common attacks used to reduce valuations and the practical steps founders can take to counter them.
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1. Anchoring Your Expectations with a Low-Ball Valuation Range
The tactic:
A private equity group asks for basic financial information, then casually mentions a valuation range that sounds reasonable but sits far below market value. They frame it as a friendly estimate. In reality, they are setting a psychological anchor.
Why it works:
Founders often lack awareness of their true market value and may unconsciously anchor future expectations to the first number they hear. A PE firm might say "we buy for 10x" without defining what that means—10x profit? 10x revenue? This leaves owners confused and creates unrealistic expectations that fuels industry rumors.
How to defend:
Obtain a valuation before sending detailed financials.
Avoid letting one buyer dictate the price conversation.
Bring multiple buyers to the table so there are several reference points at once.
Ask buyers their valuation methodology and get as specific as possible
2. Turning Ordinary Business Realities Into “Concerns”
The tactic:
A buyer points to normal operations and reframes them as risk factors. Examples include a small concentration client, a seasonal revenue pattern, or a temporary reduction in margin. They then use these points to argue for a lower price.
The most frustrating case occurs when the "concern" is a widely known industry reality. For example, imagine owning a Christmas store and having a buyer express alarm about seasonality mid-diligence—despite knowing this before they submitted their offer. This last minute distress is a way of trying to shave off a few dollars at the closing table, don’t let them bully you.
Why it works:
Founders often go on the defensive. This strengthens the buyer’s leverage.
How to defend:
Present any potential risks proactively within your buyer presentation materials / data room.
Provide context that clarifies why these points do not weaken long-term value.
Resolve any simple operational issues before you start the process.
3. Extending Diligence to Create Fatigue
The tactic:
A buyer increases the intensity of diligence requests. They ask for repeated versions of the same documents, new analyses, and constant clarifications. The intention is to exhaust you. Fatigue often results in acceptance of unfavourable adjustments at the end.
Why it works:
Founders have companies to run. Private equity teams do not face the same constraints.
How to defend:
Build a complete and organized data room before you go to market.
Hire an M&A advisor to manage requests and shield you from the volume.
Set clear expectations and timelines from the beginning.
4. Overstating Owner Dependence
The tactic:
Even if your team handles most operations, a buyer may amplify the remaining founder involvement and classify it as a major risk. This becomes justification for a reduced valuation or a requirement for long transition periods.
Why it works:
Owner dependence is one of the most common reasons buyers request discounts. It also a very valid concern for most buyers, making this a tricky one.
How to defend:
Transfer key responsibilities to team members before the sale process.
Document all core tasks, workflows, and decision paths.
Demonstrate performance during periods when you step away from daily operations.
Explore selling your business 2-5 years before you want to retire/leave the business. Retain some ownership after the sale (called rollover equity) and continuing to operate as CEO for a few years before getting a 2nd pay-out (read more about roll-over equity here).
5. Using Working Capital Adjustments to Reduce Your Net Proceeds
The tactic:
Working capital adjustments can quietly reduce the final amount you receive. Buyers sometimes introduce new calculations or definitions late in the deal. These can lower your net proceeds without affecting the official purchase price.
We've seen PE firms use this tactic to reduce the final sale price by hundreds of thousands of dollars through strategic manipulation of working capital definitions.
Why it works:
Working capital formulas are complicated. Buyers often understand them better than sellers.
How to defend:
Define the working capital approach at the LOI stage.
Use a professional to review models and calculations so you know your NET amount of sale proceeds after fees, taxes, and working capital.
Avoid vague phrasing that can be manipulated later.
6. Introducing Fake Urgency
The tactic:
A buyer claims they must move quickly. They might mention an investment committee meeting, internal deadlines, or competing deals that affect timing. The intent is to influence you to compromise on price or terms in order to “keep momentum.”
Why it works:
Founders do not want to lose a serious buyer and may agree to rushed decisions.
How to defend:
Treat timing pressure with caution unless you see clear evidence.
Maintain conversations with multiple buyers to reduce urgency pressure.
Set a timeline that reflects your process and not theirs.
7. Challenging Add-Backs to Reduce EBITDA
The tactic:
Buyers dispute your adjusted EBITDA, which is a method of comparing profitability between companies in the same industry. They question owner compensation adjustments, one-time expenses, professional fees, travel, and anything else that increases EBITDA. Every dollar removed reduces your valuation by 3 to 6 dollars (ouch).
Why it works:
Many founders are not prepared to defend their adjustments with proper documentation. When they attempt to sell independently, they may have missed valid add-backs that would have boosted their valuation significantly.
How to defend:
Work with an M&A advisor to track and categorize add-backs clearly for the 12 to 24 months preceding a sale.
Provide evidence for each adjustment.
Allow your M&A advisor to negotiate this category on your behalf.
8. Presenting a Strong Price With Weak Terms
The tactic:
Some buyers present a high valuation and then attach terms that reduce the real value. Common examples include low cash at close, large earn-outs (performance-based payments), significant seller financing, or oversized rollover equity with aggressive liquidation preferences. The headline number remains impressive while the actual payout becomes diluted.
Why it works:
Founders often focus on valuation rather than the structure that delivers it.
How to defend:
Assess net proceeds first rather than the top-line number.
Compare competing offers using models that show true take-home value.
Apply caution with earn-outs because they transfer significant risk to the seller with a small minority ever paying out.
9. Locking You Into an Exclusive Deal
The tactic:
A private equity group expresses enthusiasm and submits an offer (LOI) that immediately asks for exclusivity in order to “move quickly.” The goal is to remove competition before the buyer presents clear valuation or deal structure information.
Why it works:
Founders worry about losing the deal and agree out of panic.
How to defend:
Avoid exclusivity until you have multiple offers or a clear understanding of current market multiples that buyers are paying in your industry.
Obtain proof of funds or further validation from buyers they are able to close the deal.
Maintain competitive tension for as long as possible.
How to Turn the Playbook in Your Favour
These tactics are predictable. Predictability gives you an advantage if you prepare properly.
Four ways to maximize your exit:
Prepare your business as if buyers are already analyzing it
Financial clarity, organized documentation, and a strong growth narrative create leverage.
Start by reading our Million Dollar Exit Guide (free) here: https://www.breakwaterma.com/business-exit-guide
Hire an M&A firm to run a structured, professional process
A clear process signals credibility and reduces the impact of buyer tactics.
PE firms actually appreciate a well-run process PLUS your M&A advisor can play ‘bad cop’ when negotiations get tough (start with a free valuation here).
Maintain optionality
One buyer = no buyer. Keep multiple buyers in the process create stronger negotiating power than any single tactic.
Avoid negotiating alone
Founders who enter negotiations without professional support often give up value without realizing it. A strong advisor is your counterweight to a fully staffed private equity team.
Key takeaways
Private equity buyers use predictable tactics that reduce valuation.
Anchors, add-back disputes, and working capital adjustments are the most common tools.
Fatigue and timing pressure can quietly influence a founder’s judgment.
Competitive tension and strong preparation reduce the effectiveness of these tactics.
Proper representation levels the playing field and preserves value.
FAQs: Defending Your Valuation When Selling to Private Equity
How do private equity buyers try to lower your valuation?
Private equity buyers use a repeatable playbook to push valuations down. Common tactics include anchoring you with a low initial value range, reframing normal business realities as "risks", stretching diligence to create fatigue, and challenging your EBITDA add backs. They might also manipulate working capital definitions, push weak deal terms behind a strong headline price, or demand early exclusivity. Understanding these moves in advance helps you protect your number instead of reacting under pressure.
Why is getting a third party valuation before talking to buyers so important?
Without a professional valuation, founders often anchor to the first number a buyer throws out, even if it is far below market. A formal valuation sets a grounded reference point based on your actual performance, industry multiples, and deal structures. This allows you to evaluate offers objectively, compare multiple buyers on equal footing, and avoid letting a single private equity group control the price conversation.
What are the most common "attacks" private equity uses in negotiations?
The most frequent attacks include low ball valuation ranges, exaggerated concern about owner dependence, aggressive challenges to EBITDA add backs, and overly complex working capital adjustments. Buyers also use time pressure, extended diligence, and exclusivity demands to weaken your leverage. Each tactic has a clear purpose: to either reduce your purchase price, chip away at your net proceeds, or push you toward unfavorable terms at the closing table.
How can founders defend against add back and EBITDA challenges?
The best defense is preparation. Track potential add backs 12 to 24 months before a sale, document each adjustment with invoices or contracts, and work with an M&A advisor or accountant to categorize them correctly. When buyers challenge your EBITDA, you are able to respond with data instead of emotion. This often preserves hundreds of thousands, or even millions, in value, because every dollar of EBITDA removed can reduce your valuation by three to six dollars.
What is working capital manipulation, and how does it impact what I actually take home?
Working capital manipulation happens when buyers quietly change how working capital is defined or calculated late in the process. They might adjust target balances, exclude certain assets, or reinterpret timing assumptions. These changes do not touch the headline purchase price, but they reduce the cash you receive at closing. To avoid this, define working capital mechanics clearly in the LOI, have experts review the models, and focus on net proceeds instead of just enterprise value.
Why is deal structure just as important as headline valuation?
Two offers with the same valuation can produce very different outcomes for the seller. Low cash at close, large earn outs, heavy seller financing, and oversized rollover equity can all erode real value. Founders should compare offers based on actual cash received at closing and realistic future payments, not just the top line number. Modeling net proceeds, including taxes, fees, and working capital, gives you a clear picture of what each deal is truly worth.
How does keeping multiple buyers in the process protect my valuation?
Competitive tension is one of the strongest defenses against private equity tactics. When more than one qualified buyer is at the table, you have alternatives if a group pushes too hard on price, terms, or timelines. This makes it easier to push back on add back disputes, resist unnecessary exclusivity, and negotiate from strength. One buyer means no real choice. A structured process with multiple bidders gives you leverage and often results in better pricing and terms.
Should I try to negotiate directly with private equity, or hire an M&A advisor?
Founders who negotiate alone are often outmatched by experienced deal teams that run transactions for a living. An M&A advisor helps you position the business, manage diligence, defend valuation drivers, and run a competitive process that keeps multiple buyers engaged. They also act as a buffer during difficult conversations, allowing you to maintain a strong working relationship with the buyer while still protecting your number and terms.
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