Leveraged Buyout Strategy

Private Equity firms are increasingly eyeing accounting firms as prime acquisition targets. The playbook is simple: acquire an established firm, then aggressively attract disillusioned Big 4 and Tier 2 Partners, leveraging their ability to generate high-margin, recurring revenue. In the past three years, PE firms have taken stakes in five of the top 26 accounting firms. This trend shows no sign of slowing, with Grant Thornton UK LLP and Cooper Parry rumoured to be the next in line. For cash-strapped accounting firms, PE offers a lifeline by injecting much-needed capital to invest in technology, expand service lines, hire top talent, or enter new markets. Post-acquisition, these firms are transformed. Corporate governance structures streamline decision-making, resolve conflicts more efficiently, and create a more agile operating model. Perhaps most notably, these environments are far more appealing to younger professionals, who value stock options and equity based compensation over the traditional partnership track offered by the Big 4. As more senior Partners at large firms witness former colleagues thriving in PE owned firms, they are increasingly questioning the value of staying within a larger firm. Many are frustrated by the “premium” they pay—the gap between the revenue they generate and what they earn. Internal competition for clients only adds to the strain, creating conflicts and limiting opportunities. In a landscape where scale and brand recognition matter less than they once did, these lean, PE-backed firms offer a compelling alternative. With lower overheads, highly skilled teams, and streamlined operations, they achieve. greater profitability with less pressure on employee utilisation. For Partners, this translates into significantly higher equity stakes and improved take-home pay.

Private Thoughts From My Desk……………. #35 Private Equity purchase multiples haven’t moved much recently. But the math on returns has. Deals today are getting done with a lot more equity—about 2.8 turns more than before interest rates started increasing in 2022. And, when I ran the numbers through a generic model, here’s what hit me: At a 15x entry multiple of EBITDA with 7x debt at 6%, you need 65% EBITDA growth to hit a 20% gross IRR over a five-year holding period. That’s a 10.5% CAGR. But drop leverage to 4.2x, pay 10.3% on the debt? Now you need 97% growth—14.5% CAGR—for the same return over the same period (see chart below). So, the question isn’t whether deals still work. It’s how hard you're willing to work to make them work as a buyer. Time to dust off the full potential playbook—and actually use it. Also, a good time to remember that the margin expansion part of that playbook has contributed almost nothing to average deal returns over the past decade. To double EBITDA in five years, highly profitable growth is the formula.

Private equity firms sell assets to themselves?!… Here’s what that actually means Private equity firms are sitting on $3 trillion worth of investments they haven’t been able to sell. Why? The IPO market is quiet, M&A deals are slow, and investors are waiting to get their money back. So, many PE firms are turning to a workaround called a 𝐜𝐨𝐧𝐭𝐢𝐧𝐮𝐚𝐭𝐢𝐨𝐧 𝐟𝐮𝐧𝐝. What is that? Imagine you run a private equity fund that owns a successful business. You can’t find a buyer or take it public. Instead, you sell it… to another fund you also manage. Your investors can choose: 💰 Take their money and go 🔁 Stay invested via the new fund Meanwhile, you (the PE firm): Lock in performance fees Keep collecting management fees Keep control of a good asset This tactic accounted for a record $41 billion of PE exits in the first half of 2025, up 60% from last year. Firms like Vista, Inflexion, and New Mountain Capital have used this to cash out large stakes while staying in the game. Smart move or just recycling capital? Some see it as a savvy way to hold onto high-performers. Others worry it’s just kicking the can down the road. Either way, it’s now a mainstream strategy and it shows how creative PE firms are getting in a tough exit environment. Let me know what you think in the comments below 👇 #FinanceExplained #PrivateEquity

The FanDuel founders built a $500M company but walked away with $0. Here's how investment terms eradicated their equity (from analyzing hundreds of deals): Most founders only focus on running their business, completely missing the slightly sneaky game happening in the fine print. When you raise money, you're actually playing two separate games: • Running the business • Protecting your equity After analyzing 250+ private equity deals, here are the 4 most dangerous terms that can destroy founder equity: 1. Liquidation Preferences Investors get paid back 2-3x their investment before founders see a penny. Think of it as investors cutting to the front of the line at exit. 2. Board Flipping Rights These let investors control the board with a minority stake. One missed milestone? You're suddenly "Director of Marketing" at your own company. 3. Drag-Along Rights Forces you to sell when investors want out. Wrong timing? Too low price? Doesn't matter. You have zero say. 4. Anti-Dilution Protection If valuations drop, investors get MORE shares to maintain their ownership %. You're playing poker where only founders can lose chips. The real danger is how these terms compound: • Multiple layers of preferences stack up • Board control shifts away • Anti-dilution keeps hitting By Series C, your cap table becomes a minefield. Here's how to protect yourself: • Map total capital needs upfront • Build leverage before raising (revenue, unit economics, path to profitability) • Get a lawyer who's seen hundreds of venture deals • Consider alternatives (venture debt, strategic partnerships, revenue-based financing) The harsh truth: Running a business and protecting your equity require completely different skillsets. Most founders master the first but ignore the second until it's too late. -- About me: WSJ bestselling author, bought 7 companies in 10 years. I help entrepreneurs skip the start-up phase by buying profitable businesses.

My previous startup was acquired for millions of dollars by a company valued over $300 million. Ever wondered how exactly do startups get acquired for millions? Here is how: I had been in touch with investors of the acquiring company well before the acquisition. One of their Managing Directors was a college alum I met at an event. That connection later led to conversations with the Partner who had led the acquirer’s Series A and eventually helped drive and mediate the acquisition. There was trust and context long before there was a term sheet. Second, our books were extremely clean. Every single bank entry had a corresponding invoice. My CA was meticulous about this. During due diligence, Deloitte went through everything in depth and did not find much to flag. Clean fundamentals remove enormous friction in M&A. Third, while we were small, we were disproportionately strong in the Financial Services market. Multiple large BFSI companies were actively using our product. That made us strategically valuable, not just financially interesting. Fourth, we were at around $1 million in annual revenue. Large enough to clearly prove product market fit. Small enough to be affordable and attractive to acquire. This "in between" stage is a powerful but often misunderstood position. Fifth, we were bootstrapped. Harshita and I held the majority of the equity and did not have any institutional investor on the cap table. That meant when the decision to sell came, it was just the two of us deciding. No board approvals, no misaligned incentives, no forced outcomes. Speed and clarity matter a lot in acquisitions. Finally, optionality changes everything. The acquirer was not the only company interested in buying us. Multiple companies were in active conversations for the same reasons above. That leverage allowed us to dictate terms instead of reacting to them. The biggest myth founders believe is that acquisitions are planned exits. In reality, they are outcomes earned by building something valuable, trusted, and hard to replace, while keeping relationships and fundamentals strong. Ironically, the less focused you are on "selling", the more likely someone wants to buy. Now that I have sold my first venture and am financially independent, my motivation has changed. I am building GreyLabs AI to be a long-lasting institution, not something optimised for a quick exit. Ironically, that mindset often creates the most durable outcomes. #startups #business #entrepreneurship

This article looks at the record-setting $55 billion buyout of Electronic Arts by the Public Investment Fund of Saudi Arabia, Silver Lake, and Affinity Partners through the same careful lens my father, Stephen C. Diamond, brought to every deal. My father wrote Leveraged Buyouts, one of the first books on private equity, and he taught me to begin every analysis with one question: What happens if things go wrong? Rather than focusing on the excitement surrounding a transaction of this size, the article examines the discipline required to make it work. It explains how leverage can magnify both reward and risk, and how easily a great story can unravel when debt, cash flow, and assumptions are not built to last. I draw parallels between this moment and earlier buyout booms, from RJR Nabisco to the period leading up to the 2007 financial crisis. The pattern is familiar. When too much money chases too few opportunities, prices rise faster than reason, and sellers walk away smiling. My father warned about this imbalance decades ago, and it still applies today. For today’s Family Offices, the lesson is especially important. Control and access can be valuable, but only when matched with patience, conservative structuring, and clear thinking. Pride of ownership should never replace sound analysis.

Remediation and implementation are stalling? You're speaking the wrong language to your key stakeholders. In my career, at one point, I stopped focusing on outputs and started focusing on outcomes. The transformation was immediate. Here's why your GRC controls aren't getting implemented 👇 You're talking about outputs: ↳ Documentation requirements ↳ Compliance deadlines ↳ Checkbox frameworks ↳ Attestation evidence You should be focusing on outcomes: ✅ Revenue protection ✅ Market expansion opportunities ✅ Greater visibility over your perimeter ✅ Operational efficiency gains 🗣️ Transform your language BEFORE: "We need this for SOC 2" AFTER: "This control will help us close Enterprise deals faster" 🌐 Connect to their priorities BEFORE: "The auditor requires it" AFTER: "It will reduce your team's incident response workload" 🔢 Quantify the business value BEFORE: "It's a required control" AFTER: "It prevents the exact issue that cost Competitor X $2M last quarter" Most GRC programs die before stakeholders see their value. But focusing on outcomes changes everything. Controls get implemented when they solve real business problems. Outcomes beat outputs every time. P.S. What business outcome has been most effective in driving security adoption at your company? Make sure to subscribe to the GRC Engineer newsletter, this week's entry will touch on this topic!

𝐉𝐮𝐬𝐭 𝐭𝐮𝐫𝐧𝐞𝐝 𝐚 𝐦𝐚𝐫𝐤𝐞𝐭 𝐡𝐢𝐜𝐜𝐮𝐩 𝐢𝐧𝐭𝐨 𝐚 $70𝐌 𝐰𝐢𝐧 𝐟𝐨𝐫 𝐚 𝐏𝐄 𝐜𝐥𝐢𝐞𝐧𝐭. 𝐇𝐞𝐫𝐞'𝐬 𝐡𝐨𝐰. Last year I got a call from a megafund I've advised before. "Market's gone nuts with these rate hikes. We think there's opportunity." Understatement of the year. Their portfolio company was rock-solid – $500M enterprise value, performing above plan despite macro chaos. But the company's fixed-rate debt was getting hammered, trading at 80 cents on the dollar. Pure market mechanics, nothing fundamental. Most firms would shrug. "Interesting, but so what?" I spotted something different. The fund owned 100% of the equity but ZERO of the debt. Classic artificial separation between capital structure components that only exists because most investors lack either imagination or control positions. Sometimes both. 𝐌𝐲 𝐬𝐭𝐫𝐚𝐭𝐞𝐠𝐲: Buy up a chunk of the debt at the depressed price while maintaining complete equity control. Not just a trade, but a fundamentally transformative move that: [1] Instantly transferred value from selling debt holders to our equity position (market dislocation arbitrage) [2] Reduced change-of-control repayment risk on exit (structural enhancement) [3] Created multiple new strategic exit paths (optionality creation) The math was compelling: $6M direct gain from buying $30M debt at $24M, plus another $42M from enhanced exit value due to simplified structure and reduced transaction risk. They executed immediately. Initial 10% debt repurchase, followed by another 15% over six months. Total position up $70M in value. Here's the kicker – most advisors would've calculated the discount to par and stopped there. Basic arithmetic. I showed how this maneuver fundamentally altered their strategic position in ways potential buyers would pay real money for. When you control both sides of the table, you dictate the rules of engagement. Why share this? Because our industry spends too much time on financial engineering and not enough on strategic repositioning. Capital structure isn't static – it's a dynamic tool for value creation. The best GPs don't just squeeze more EBITDA from their companies; they reshape the financial architecture itself. The line between "market opportunity" and "strategic transformation" is where the real money gets made. That's the playground I operate in. Who else has executed similar strategic plays recently? Would love to hear your stories. #PrivateEquity #M&A #ValueCreation #CapitalStructure #StrategicFinance

A step-by-step guide to modeling the Pro Forma Balance Sheet (with template) 👇 ~~~ 𝗧𝗟;𝗗𝗥: grab the template here 👉 https://lnkd.in/ex6BKa4E ~~~ 𝟭. 𝗦𝗲𝗹𝗹𝗲𝗿 𝗧𝗮𝗸𝗲𝘀 𝗖𝗮𝘀𝗵 𝗮𝘁 𝗖𝗹𝗼𝘀𝗲 Seller keeps the existing cash because it's value they previously created and doesn't belong to the new buyer. (Often times this is excess cash, not all cash) Steps: Reduces cash, reduces Retained Earnings. 𝟮. 𝗡𝗲𝘄 𝗘𝗾𝘂𝗶𝘁𝘆 Buyer brings new equity to purchase the business. Steps: Equity up, Cash up 𝟯. 𝗡𝗲𝘄 𝗗𝗲𝗯𝘁 Buyer also brought new debt to purchase the business. Steps: Debt up, Cash up 𝟰. 𝗣𝗮𝘆𝗼𝗳𝗳 𝗢𝗹𝗱 𝗘𝗾𝘂𝗶𝘁𝘆 (𝗮𝗸𝗮 𝗯𝘂𝘆 𝘁𝗵𝗲 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀) The cash from the new equity & debt goes to purchase the existing business. Any premium above the equity value is recorded as Goodwill. Steps: Old Equity Paid Off, Goodwill Calculated, Cash goes out (this is "The Purchase") How to calculate Goodwill: Enterprise Value (+) Cash (-) Debt = FMV of Equity (-) Book Value of Existing Equity = Goodwill 𝟱. 𝗣𝗮𝘆𝗼𝗳𝗳 𝗢𝗹𝗱 𝗗𝗲𝗯𝘁 Similar to step 4, new debt comes in, old debt goes away. Steps: Reduce old debt, reduce cash 𝟲. 𝗧𝗿𝗮𝗻𝘀𝗮𝗰𝘁𝗶𝗼𝗻 𝗙𝗲𝗲𝘀 These are an expense for the new buyer (to get the deal done), so it immediately hits Retained Earnings. Steps: Retained Earnings down, Cash down 𝟳. 𝗗𝗲𝗯𝘁 𝗙𝗲𝗲𝘀 Under the "old method," you would record the deferred financing fees as an asset. Today they're recorded as either a contra-liability or asset depending on the type of debt. The impact on the P&L is the same (amortization), so I often prefer the "old method" to keep my model cleaner. Steps: asset up, cash down 𝗪𝗮𝘁𝗰𝗵 𝘁𝗵𝗲 𝗖𝗮𝘀𝗵 In every step, you can see how the cash immediately flows in and subsequently flows out in order to complete the purchase. The ending result is the "Pro Forma Balance Sheet" that reflects the new debt, new equity, and cash balance for the buyer ($500k in this case). 👋 Hey, I'm Chris Reilly — I transform complex financial models into simple systems (using real PE/FP&A experience). 𝘱.𝘴. 𝘵𝘩𝘦 𝘱𝘳𝘰 𝘧𝘰𝘳𝘮𝘢 𝘣𝘢𝘭𝘢𝘯𝘤𝘦 𝘴𝘩𝘦𝘦𝘵 𝘪𝘴 𝘰𝘯𝘦 𝘱𝘢𝘳𝘵 𝘰𝘧 𝘢 𝘭𝘢𝘳𝘨𝘦𝘳 𝘓𝘉𝘖. 𝘎𝘦𝘵 𝘵𝘩𝘦 𝘧𝘶𝘭𝘭 𝘱𝘭𝘢𝘺𝘣𝘰𝘰𝘬 𝘩𝘦𝘳𝘦 👉 https://bit.ly/46xfrp5

How long does a typical M&A process take? ⏱ This is one of the most common questions I get from founder and operators. The short answer: plan for 9-12 months. But the exact timeline depends on the complexity of your business, buyer interest, and how prepared you are before going to market. Here’s a breakdown of the typical process: 1️⃣ Getting Organized (4-8 weeks) This is where we do the heavy lifting before approaching buyers: • Understand your business, financials, and growth story. • Prepare marketing materials (CIM, teaser). • Identify and qualify potential buyers. • Set up a preliminary data room. The better prepared you are, the smoother and faster the process will run. 2️⃣ Buyer Outreach (6-10 weeks) We confidentially approach a curated list of strategic and financial buyers: • Send out teasers. • Sign NDAs and share materials with interested parties. • Host initial management calls and Q&A sessions. At this stage, momentum matters. Strong buyer interest early can set the tone for a competitive process. 3️⃣ Indications of Interest (IOIs) (4–8 weeks) • Qualified buyers submit non-binding IOIs with valuation ranges and deal structures. • We invite top bidders to deeper management meetings to refine their understanding of your business and narrow the field. This is an important part of evaluating mutual fit and ensuring the buyer has serious interest. 4️⃣ Due Diligence & Negotiation (8–16 weeks) • Shortlisted buyers submit a Letter of Intent (LOI) outlining their proposed terms for the transaction. We negotiate and help structure the deal on your behalf. • Once you sign an LOI with the preferred buyer, you begin detailed financial, legal, tax, and operational diligence. Delays here are common if diligence uncovers surprises or if documentation drags. 5️⃣ Purchase Agreement (6-12 weeks) • Once due diligence is complete or at least meaningfully progressed, the buyer will start preparing the long-form purchase agreement (PA). • Expect several weeks of legal back and forth on the PA as well as supporting documentation and ancillary agreements. • The buyer may also finalize its financing during this period (if applicable). Keep in mind: time is the enemy of all deals, so be pragmatic during this phase to keep things moving. 5️⃣ Closing (1–4 weeks) • Final sign-offs, regulatory approvals (if needed), and the official transfer of ownership. • Don't forget to celebrate when everything's finalized! 💡 Key Takeaways: • Be prepared: getting organized upfront can shave months off the process. • Keep momentum up: avoid long delays between milestones, as they can erode buyer interest. • Expect surprises: even the smoothest deals encounter hurdles. Selling your company is one of the biggest decisions you’ll make in your career. Knowing what to expect in terms of timeline can help you plan for success. --- 👋 I'm James Creech, Founder of Quartermast Advisors. We help media, tech, and creator economy founders maximize their exit outcomes.