Why Private Equity Firms Won’t Give You a Fair Deal (And Why They Can’t)
- Peter Flippen
- Mar 17
- 4 min read
When a private equity (PE) firm comes knocking, they won’t tell you this upfront, but their job isn’t to give you a fair deal. Instead, it’s to get the best possible terms for their investors. No matter how friendly or persuasive they seem, they have a fiduciary duty to maximize returns for their limited partners (LPs).
Selling your HVAC business is a huge decision, and if you’re dealing with PE firms directly, you’re playing on their turf, by their rules. They’re experts at this game. You’re an expert at running your business. That’s why owners who negotiate with a PE firm directly often leave money on the table. Or worse, end up with a deal that looks good at first glance but costs them dearly in the long run.
If you’ve been approached by a PE firm or you’re thinking about selling your HVAC business, this guide is for you. We’ll cover what fiduciary responsibility those firms have, what it means for you, and your alternatives. There is a way to sell your business and protect your interests at the same time.
The Fiduciary Duty PE Firms Have and What It Means for You
Private equity firms don’t just want to get a good deal; they have to. There is no leeway for a less-than-stellar transaction. It’s their legal and contractual obligation.
When investors commit money to a PE fund, the fund’s managers, called general partners (GPs), are bound by fiduciary duty to act in the best interests of those investors. Everything they do must serve that responsibility, which precludes giving you top dollar for your business. What does that mean in the end? It means PE funds will focus on:
Maximizing returns: Their primary goal is to buy low and sell high. That’s how they make money for their investors and themselves. This is probably the most important thing to remember about any potential deal.
Minimizing risk: They want terms that protect them from financial downside, even if that means shifting risk onto you. Increased risk for you could come in many forms, including a reduced price, less than ideal terms, and more.
Structuring deals in their favor: They have lawyers and dealmakers who specialize in making sure every clause in the contract benefits them. That’s why it’s so important that you never sign a contract without a trusted lawyer of your own to scrutinize the language and make sure it’s not too one-side.
PE firms and their investors don’t see this as being personal. It’s just business. But it’s business that could cost you millions if you don’t approach it with the right strategy.
The Off-Market Trap: Why PE Firms Avoid Brokers
Private equity firms know that competition drives up prices. If multiple buyers are bidding on your business, the price goes up, and the terms get better for you. That’s why some PE firms prefer to approach business owners directly, in what’s known as an "off-market" deal. Remember the old saying: if it seems too good to be true (like a buyer magically appearing out of thin air to offer you a great deal), it probably is.
Here’s how it works:
They reach out to you directly, often through friendly emails or calls that make it sound like they’re just interested in having a conversation.
They position themselves as knowledgeable partners who can make the process simple and painless.
They may convince you that avoiding a broker will save you money. After all, no broker means no commission, right? And who wants to pay a commission when they could have a bigger slice of the pie for themselves?
Without a competitive bidding process, they can dictate the price and terms, almost always in their favor.
What they don’t tell you is that businesses represented by advisors or brokers typically sell for significantly higher prices. A good advisor doesn’t just find more buyers, either. They create leverage, forcing buyers to compete and making sure you get the best possible deal.
Price is just one part of the equation. The real danger lies in the fine print. PE firms are masters at structuring deals with terms that protect them and expose you to unnecessary risk. Without an expert reviewing these terms, you might think you’re getting a great deal, only to realize later that it was stacked against you from the start.
The Bottom Line: Get an Advisor, Get a Better Deal
If a private equity firm is interested in buying your business, it means your company has real value. Don’t undersell yourself. The only way to ensure you get a fair deal is to create competition and get expert guidance.
A qualified broker or advisor:
Brings multiple buyers to the table to drive up the price.
Understands the games PE firms play and can counter them.
Negotiates better terms to protect your interests, not just the buyer’s.
Selling your business is likely the biggest financial transaction of your life. Make sure you’re the one setting the terms, not the PE firm.
Co-Authors: Peter Flippen, IEI Advisors and Valerie Mellema, Words You Want
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