Selling a business to private equity: what Canadian owners should know

Selling a business to private equity usually means selling a majority of your company to an investment fund that plans to grow it and sell it again within several years. You receive most of your money at closing, often keep a minority stake, and are usually asked to stay on and help run the business for a time. It can pay well, but it is a partnership with an end date, not a clean goodbye.

Private equity is no longer only for large companies. In the first quarter of 2026, private equity investors put CAD $3.86 billion into 138 Canadian transactions, and 85% of the disclosed deals were under CAD $25 million, according to the CVCA’s Q1 2026 market report. That count covers every kind of private equity investment, not only buyouts, but it shows where the activity is: in companies the size of yours. If a fund has not called yet, one may.

What does selling a business to private equity mean?

A private equity firm raises money from pension funds, insurers, family offices and wealthy individuals, and invests it in private companies. Each fund has a limited life, so every company it buys is bought to be sold again. That one fact explains most of how these buyers behave.

A typical buyout has three parts.

• Control. The fund usually buys more than half of the shares, so it decides who runs the business and what the plan is.
• Debt. Part of the price is borrowed against your company’s own cash flow. The business you sell is the business that repays the loan.
• A planned exit. From the first meeting, the fund is thinking about who will buy the company from it, and at what price.

Funds buy in two ways. A platform is the first company they buy in an industry, usually one with a team strong enough to lead what comes next. An add-on is a smaller company bought to bolt onto a platform. Many owner-managed companies are bought as add-ons, and the deal, and your role after it, look quite different.

Does private equity buy small businesses?

Yes, within limits. Most funds want a record of steady profit, a team that can run the business without the founder, and room to grow, often in a fragmented industry where they can buy competitors. The CVCA figures show how much activity sits in smaller deals. Below a certain size, though, the buyer is more often an individual, a search fund or a competitor. Where that line sits varies from fund to fund, so ask early.

How a private equity buyer prices your business

A fund prices you the way most buyers do: normalized EBITDA, the profit the business really earns, times a multiple, less debt and plus extra cash. We walk through each step in how much is my business worth.

Two things are particular to private equity. First, the fund works backwards from the return it needs. It asks what it could sell the company for in a few years, how much debt the business can carry, and what price today leaves room for that return. Second, it checks the numbers hard. Most funds commission a quality of earnings review, and weak numbers break deals: in Axial’s study of signed letters of intent that fell apart in 2025, 21.3% broke on quality of earnings findings.

On multiples, Bennett Jones, citing CVCA Intelligence data, reported in its H1 2026 private equity briefing that Canadian deals under C$100 million were still trading at around 8.0 times EBITDA. Treat that as a market signal, not a price for your company. Deals under C$100 million include companies far larger than most owner-managed businesses, and your multiple depends on your own risks.

How a private equity deal is structured

The headline price is rarely the cheque you receive at closing. A private equity offer usually combines several of these.

• Cash at closing: the largest part, funded by the fund’s money and the debt.
• Rollover equity: part of your price taken as shares in the new company, so you keep a stake.
• Earn-out: a later payment if the business hits agreed targets.
• Vendor take-back: a loan from you to the buyer, repaid over time.
• Holdback or escrow: part of the price kept back for a period to cover claims under the purchase agreement.
• Working capital adjustment: the price moves up or down at closing with the receivables, inventory and payables the business arrives with.

Compare offers on what you keep after tax, and on when you receive it. A higher headline with a large earn-out can be worth less than a lower one paid in cash.

The second bite of the apple

The stake you keep is what people call the second bite. When the fund sells the company again, your shares are sold alongside its own. If the business has grown and the debt has come down, that second payment can be large.

An illustration, with round numbers. Say the fund values your shares at $20 million and you keep 30%. You receive $14 million for the rest, less any deferred or held-back portion. If the company is sold again a few years later and its equity is then worth twice as much, your 30% could be worth $12 million. If it sells for less, or still carries heavy debt, your stake could be worth very little.

Your percentage is not the whole story either. Funds often hold preferred shares or loans that are paid before common shares, and your stake may sit behind them. We show how much that can cost in rollover equity: why your 20% might pay you nothing. Ask for the same mix of shares as the fund, at the same price.

Private equity buys your company in order to sell it again. Plan for both sales.

What happens when private equity buys your company?

Day to day, a lot can stay the same at first. The name, the customers and most of the staff usually remain. What changes is who you answer to.

• A board. You report to a board the fund controls, usually monthly, against a plan you agreed.
• Reporting. Expect monthly financials, forecasts and targets, and often a new finance lead to produce them.
• Debt. The company now carries a loan, with covenants. A slow year that used to be your problem is now the lender’s too.
• Add-ons. If you are a platform, you may be buying and absorbing other companies, often quickly.
• An employment agreement. You stay for an agreed period, in a defined role, with a non-compete that limits what you can do afterwards.

Some owners thrive in this. They gain capital, a finance team and a partner who wants to grow. Others find that being an employee in the company they built is harder than they expected. Ask yourself honestly which you are, before you sign.

What happens to employees when private equity buys a company?

Most buyers want the team to stay, because the team is a large part of what they paid for. Key managers are often offered shares or options in the new company, which ties them to the plan and rewards them at the exit. Change still comes: new systems, new reporting, sometimes new leaders in finance or operations, and a sharper eye on cost. Agree with the buyer how and when your people will hear, and what they will be told.

Selling a business to private equity: the pros and cons

What owners gain:

• Cash now. You take most of your wealth out of the business while it is still performing.
• A partner with capital. Growth you could not fund alone, including buying competitors.
• A succession path. If no family member or manager can buy you out, a fund can, and it can help bring in your successor.
• An experienced buyer. Funds buy companies for a living and usually know how to get a deal closed.

What owners give up:

• Control. You stop being the final word.
• A debt-free company. Borrowing raises the stakes if trading turns.
• Your own timetable. The plan is built around the fund’s return and its exit date.
• The choice of when to sell the rest. Your stake is usually sold when the fund decides.
• Some of the culture. Formal reporting and faster change can unsettle a close team.

Should I sell my business to private equity?

It tends to suit owners who want to take money off the table but still have the energy to grow, who have managers ready to step up, and who are comfortable answering to a board. It suits less well if you want to leave on closing day, or if the business still depends on you for its key customers and decisions. A fund will spot that dependence and price it, or ask you to stay longer than you planned.

It also helps to compare. A competitor may pay more for savings it can make, and may let you leave sooner. A sale to your managers or to an employee ownership trust keeps the business in familiar hands, at a different price and pace. The right answer depends on what you want after the sale as much as on the price.

How to sell your company to private equity

• Prepare for 1 to 2 years: clean monthly numbers, add-backs you can prove, and a team that runs the business without you. Our method sets out how we approach this work with owners.
• Talk to more than one buyer, including strategic buyers as well as funds. One buyer sets the price. Several test it.
• Check the fund as it checks you. Ask how long it usually holds a company, how much debt it plans to use, what it expects of you, and for the names of founders it has backed, including one where things went badly.
• Settle the big terms in the letter of intent: the price, how much is paid at closing, the rollover and its share class, and your role and for how long. Once the LOI is signed, these are hard to reopen.
• Plan the tax early. A share sale may let you use the lifetime capital gains exemption, $1,275,000 per person in 2026, and a rolled stake can often be exchanged on a tax-deferred basis under section 85 of the Income Tax Act. See capital gains when selling a business in Canada and share sale vs asset sale in Canada.
• Check where the buyer is from. A fund based outside Canada may need to file under the Investment Canada Act, which can add time.

Confirm the tax and legal points with your accountant and your lawyer. If a fund has called, or you think one might, a short, private conversation is a good place to start.