The Private Equity Playbook

Adam Coffey (2019) · 15 min read

A former CEO's guide to navigating private equity (PE) deals. Coffey demystifies PE firms' strategies, explains the typical 3-5 year investment cycle, and provides practical advice for business owners considering selling to or partnering with PE investors. The book focuses on middle-market deals ($10M-$1B valuations).

Core ConceptsHow Private Equity Works

The PE Investment Cycle

3-5 year hold period is standard. PE firms aim to 3-5x their investment through operational improvements, add-on acquisitions, and financial engineering.

Capital Stack

Typical structure: 60-70% debt (bank loans, bonds), 30-40% equity (PE firm's capital). Debt is cheaper but increases risk.

Common Misconceptions

PE firms aren't just "strip-and-flip" operators. Successful ones create value through real operational improvements, not just financial engineering.

Alignment Tension

Founders often clash with PE firms over growth vs. profitability priorities and exit timing. Clear expectations are critical.

FrameworkThe PE Deal Process

Target Identification: PE firms look for businesses with recurring revenue, strong cash flow, and growth potential in fragmented markets.
Due Diligence: 60-90 day deep dive into financials, operations, legal, and market position. Expect intense scrutiny.
Letter of Intent (LOI): Non-binding agreement outlining key terms like valuation, structure, and exclusivity period.
Definitive Agreements: Purchase agreement, employment contracts for key personnel, and often rollover equity for sellers.
Closing & Transition: Funds transfer, ownership changes, and 100-day plan implementation begins.

Key PlayersWho Does What

Role	Responsibilities	Incentives
PE Partner	Deal sourcing, capital allocation, board oversight	Carried interest (20% of profits after return hurdle)
Operating Partner	Hands-on operational improvements post-acquisition	Equity upside in specific portfolio companies
Portfolio CEO	Day-to-day management, executing growth plan	Base salary + equity (typically 5-10% of company)
Bank/Lender	Providing debt financing	Interest payments + principal repayment

How to Apply This

If considering a PE deal: 1) Build a 3-year financial model showing growth levers, 2) Clean up your cap table and financials 12+ months before engaging with PE firms, 3) Negotiate for rollover equity (typically 20-30%) to participate in upside.

Financial MechanicsValuation Drivers

EBITDA Multiple Math: Revenue: $50M Margin: 20% → EBITDA: $10M Multiple: 6x → Valuation: $60M Debt Capacity: 3.5x EBITDA → $35M debt Equity Check: $60M - $35M = $25M PE Target: 3x return in 5 years → Need $75M equity value Exit at 8x $15M EBITDA = $120M Debt repaid: $120M - $35M = $85M Return: $85M/$25M = 3.4x

Caveats & Limitations

1) PE deals often fail due to over-leverage when economic conditions change. 2) The book focuses on middle-market deals - mega-fund strategies differ significantly. 3) Cultural clashes between founders and PE operators are common and often underestimated.