Selling to PE vs a Strategic: A Sydney Virtual CFO Guide
A Sydney virtual CFO on how diligence, add-backs, and deal structure differ when you sell to private equity versus a strategic buyer, and how to prepare…
A private equity buyer and a strategic acquirer are buying two different things from you, and it shows up in the numbers long before the term sheet. One is buying a standalone cashflow it can grow; the other is buying what your business does for theirs. Preparing for the wrong one costs you price and time. This is a Sydney virtual CFO’s account of how the two differ, and how to be ready for either.
Published: July 2026
A private equity buyer is buying a platform: a business that can stand on its own, generate predictable cashflow, and grow over a defined hold period before being sold again. They care about the quality and durability of your earnings, because those earnings service the debt and deliver their return. They are, in effect, underwriting your business as it is, plus the growth they can add.
A strategic buyer, usually a larger company in or adjacent to your market, is buying what your business does for theirs: a customer base, a product, a capability, a market position, or the removal of a competitor. They care less about your standalone cashflow and more about the fit: the revenue they can cross-sell, the costs they can remove by combining the two businesses, the strategic gap you fill. That difference in motive changes almost everything downstream.
This is founder-side preparation. It sits alongside a fundraise-ready financial model and the broader exit-readiness work a 90-Day Number engagement can support.
The diligence experience is markedly different depending on who is across the table.
Private equity runs a numbers-heavy process. Expect a quality-of-earnings review that pulls your EBITDA apart to test how real and how repeatable it is, a working-capital analysis to set the peg the deal will be priced against, and a hunt for debt-like items that reduce the equity value. PE firms do this for a living and will find every soft assumption in your accounts. Your historicals need to reconcile cleanly and your earnings need to survive being stress-tested line by line.
A strategic buyer runs a different kind of diligence, weighted toward integration and risk. They will scrutinise customer concentration, key-person dependency, contract transferability, and how your systems and people will fold into theirs. The numbers still matter, but the questions lean toward “what breaks when we integrate this” rather than “how durable is this cashflow on its own”.
When you normalise EBITDA for sale, you add back owner-specific and one-off costs to show the true earning power of the business. How those add-backs are received depends on the buyer.
Private equity tends to be disciplined and sceptical about add-backs, because every dollar of accepted add-back raises the price they pay against their multiple. They will accept well-evidenced, non-recurring items and strike anything that looks like a recurring cost relabelled as one-off. A strategic buyer can be more accommodating on some add-backs, particularly costs they know they will remove by absorbing you, your duplicate back-office, for instance, that disappears inside their larger structure. The same add-back can land differently depending on who is reading it. For the mechanics of building a defensible add-back schedule, see EBITDA normalisation before a sale.
The shape of the deal usually differs by buyer type too.
Private equity frequently wants the founder to roll over equity and stay involved, because their return depends on the next few years of growth and they want the operator aligned to it. Expect management incentive plans and a meaningful earn-out or rollover component tied to future performance. A strategic buyer more often wants a cleaner exit, especially where they are buying a capability they will absorb, though they will use an earn-out where key people or uncertain revenue need to be retained through the transition. Neither structure is inherently better; they reflect different reasons for buying. The way to compare them is to model each, which is what earn-out modelling is for.
Price forms differently on each side. Private equity is disciplined to a model: they know the multiple they can pay to hit their return given the debt available, and they rarely stray far from it. Their price is an output of a spreadsheet. A strategic buyer can pay more, because the savings and revenue gains from combining the businesses are worth money to them that a financial buyer cannot access, but they rarely open with that number, and extracting it requires you to understand and evidence that combined value from their side. The strategic premium is real but not automatic; it has to be surfaced.
The practical point for a founder is that you often do not know which buyer you will end up with, so prepare for both in the same process. Get your historicals reconciled and your quality of earnings defensible, because PE will demand it and it does no harm with a strategic. Build a clean add-back schedule with evidence for every item. Understand your customer concentration and key-person risk, because a strategic will probe it hard. And model the deal both ways, a disciplined multiple against normalised EBITDA for the PE case, and a combination-informed number for the strategic case, so you can recognise a good offer from either.
The founder who prepares for only one buyer type either gets caught unready by the other or leaves money on the table by not surfacing the value the eventual buyer actually cares about. For the artefact that underpins all of this, start with building the data room before you need it.
Will private equity or a strategic buyer pay more?
It depends. A strategic buyer can pay more because the savings and revenue gains from combining the businesses are worth real money to them that a financial buyer cannot access, but they rarely open with that price and it has to be surfaced with evidence. Private equity is disciplined to a model and typically will not exceed the number their return maths supports. The highest bidder is often strategic, but only if the combined-value case is made.
How is PE diligence different from a strategic buyer’s?
Private equity runs a numbers-heavy process: quality of earnings, working capital pegs, and a hunt for debt-like items, because they are underwriting your standalone cashflow. A strategic buyer weights diligence toward integration and risk: customer concentration, key-person dependency, contract transferability, and how you fold into their business. Both examine the numbers; they are looking for different things.
Why do add-backs land differently with each buyer?
Because every accepted add-back raises the price. Private equity scrutinises them tightly to protect their multiple. A strategic buyer may accept add-backs for costs they know they will remove by absorbing you, since those costs disappear in their structure. The same normalisation can be received quite differently.
What is an earn-out and why does it come up?
An earn-out is deferred consideration paid if the business hits agreed targets after the sale. Private equity uses it, often alongside equity rollover, to keep the founder aligned to future growth. Strategics use it to retain key people or de-risk uncertain revenue through the transition. Either way, part of your price becomes contingent, and it should be modelled before you agree to it.
Should I prepare differently depending on the buyer?
Prepare for both, because you often do not know which you will get. Reconcile your historicals, build a defensible add-back schedule, understand your customer and key-person risk, and model the deal both as a disciplined PE multiple and a combination-informed strategic number. Preparation that satisfies PE generally serves you well with a strategic too.
Is this virtual CFO work or is it for my accountant and lawyer?
It overlaps. The financial preparation, quality of earnings, add-back schedule, deal modelling, is virtual CFO territory and can be built as a project. The tax structuring of the sale and the legal terms are for your accountant and lawyer respectively. A good process has all three working together; this article is about the numbers, not the tax or legal advice.
When should I start preparing?
Earlier than feels necessary, ideally 12 to 18 months before a sale. Add-backs are more defensible when they are documented as they occur rather than reconstructed later, and a clean quality-of-earnings position takes time to build. Starting early is one of the few levers that reliably improves both price and certainty.
Sydney Virtual CFO is a Sydney-based virtual CFO service for founders running $2M to $15M businesses across SaaS, ecommerce, professional services, construction, and other low-volume, high-value industries. We deliver fixed-scope CFO engagements with a named deliverable on day 90: a 13-week cashflow forecast, a fundraise-ready financial model, a unit economics build, or a board reporting pack you can run on your own.
Our front-door product, the 90-Day Number, is fixed scope at $17,850 plus GST. We are one of the few project-based virtual CFOs in Australia, in a market built almost entirely on monthly retainers. No retainers without a deliverable. No 80-page reports. No theatre.
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This content is general information only, written for Australian founders running businesses in the $2M to $15M revenue range. It does not constitute tax, financial product, investment, or legal advice and should not be relied on as such. The work referenced is led by a Chartered Accountant (CA ANZ), but Sydney Virtual CFO is not a licensed tax agent, not a licensed financial adviser, and not authorised to provide personal financial advice. Tax obligations, accounting treatments, fundraise terms, and statutory requirements depend on your individual circumstances. For advice specific to your business, contact the team directly or consult a registered tax agent, licensed financial adviser, or qualified lawyer. Information was current at the time of publication and may change without notice. We review and update guides periodically.
