Before signing a letter of intent (LOI) to be acquired by a private equity (PE) group, you should conduct thorough due diligence on the potential acquirer to ensure alignment with your goals, values, and expectations. Below is a curated list of critical questions to ask to guide your evaluation:

1. Strategy and Vision

• What is your vision for my company?
• How does this investment align with your overall portfolio strategy?
• What is your typical timeline for holding investments, and how do you approach exits?

2. Financial Approach

• How will the transaction be structured? (e.g., cash, equity, earn-outs) Do you use a combination of senior debt, mezz and equity? Please map out the waterfall of proceeds in a typical exit.
• What level of debt will be used to finance the acquisition, and how will this impact the company’s operations and flexibility?
• Are you planning to invest additional capital into the business post-acquisition?

3. Operational Involvement

• How involved do you intend to be in day-to-day operations?
• What kind of reporting or oversight will you expect from the management team?
• Do you typically replace or retain existing management teams?
• How many investments have you made in your current fund and how many more do you expect to make? How many partners and how many companies are they involved in, and how actively are they involved in each company acquired?

4. Track Record and Expertise

• Can you provide examples of companies similar to mine that you’ve worked with? What were the outcomes?
• What is your track record in my industry? What challenges have you faced, and how did you address them?
• What specific expertise or resources do you bring to help my business grow?
• Of those deals that failed during diligence, what were the causes?
• How long does the diligence period typically last?
• Can I speak with a few prior sellers and perhaps an intermediary or two who went through diligence with you?
• What has to happen in order for you to back out of a deal?
• How often will you be on site?
• What will you need from us during diligence?
• What will be asked of my team and who do you need to meet with during diligence?

5. Post-Acquisition Plans

• What are your key goals for the business over the next 3–5 years?
• How do you plan to handle key growth initiatives such as M&A, geographic expansion, or new product development?
• What is your approach to workforce management? Will there be layoffs or restructuring?

6. Governance and Decision-Making

• What will the board structure look like post-acquisition?
• Who will make key strategic decisions, and what role will I (or the existing leadership team) play?
• Describe the Board. What roles will the board have versus the management team? U
• How do you handle disagreements between management and the board?
• Who makes the final investment decision? Does anyone have veto power? What is the process?

7. Cultural and Ethical Alignment

• What values drive your firm, and how do you ensure alignment with portfolio companies?
• How do you manage cultural integration after an acquisition?
• What is your reputation among past and current portfolio companies?

8. Financial Metrics and Expectations

• What financial metrics will you prioritize (e.g., EBITDA, revenue growth, cash flow)?
• What growth targets or expectations do you have, and how realistic are they?
• How do you support companies that miss financial targets?

9. Resources and Support

• What is the size of your current fund and what is a typical range of equity check for each transaction?
• What resources, networks, or tools will you provide to help grow the business?
• Will you bring in operational experts or advisors to assist with key initiatives?
• Do you have relationships with key customers, suppliers, or industry stakeholders that can benefit us?

10. Exit Strategy

• What is your ideal exit strategy for this investment?
• How do you balance short-term goals with long-term value creation?
• What will happen to my retained equity when you exit?

11. Employee Considerations

• What will happen to the existing workforce? Will there be significant changes post-acquisition?
• How do you approach compensation, benefits, and incentives for key employees?
• Will employees have the opportunity to participate in equity or incentive plans?

12. References and Due Diligence

• Can I speak with CEOs or founders of your current or past portfolio companies?
• What do your former partners or portfolio companies say
• about working with you?
• Have you ever been involved in litigation or disputes with portfolio companies? If so, why?

13. Contingencies and Protections

• What contingencies or conditions are attached to the LOI?
• Out of your last five signed LOIs, how many of them closed?
• How do you approach deal-related issues like indemnities, warranties, or earn-outs? (Since the seller is always in a superior position of knowledge, he or she will be asked to make claims or “representations” that what they have said all along is true. In some cases, the seller is asked to be financially responsible for a representation; this is called a warrant. Together, these sorts of claims to the buyer are called indemnifications.)
• What protections are in place for minority shareholders (if retaining equity)?

14. Timing and Process

• What is your timeline for closing this transaction?
• What steps are required to finalize the deal after signing the LOI?
• How do you handle delays or obstacles during due diligence?
• What is involved in diligence, who is involved, and are they internal or third-parties?

Conclusion

Signing an LOI is a critical step in selling your business, so take the time to thoroughly vet the PE group. Ask questions to assess their track record, alignment with your goals, and compatibility with your business culture. Engage experienced advisors to help evaluate responses, negotiate terms, and ensure the partnership is mutually beneficial.