By Daniel Askew, Founder & CEO of Icon Business Advisors

Private equity firms evaluating lower middle market businesses — companies with $3M to $50M in revenue and $1M to $5M in EBITDA — are looking for five things above all else: recurring or predictable revenue, a management team that can operate without the owner, EBITDA margins above 15%, a clear path to double the business in 3-5 years, and a fragmented industry ripe for add-on acquisitions. If your Nashville business checks three or more of these boxes, you’re likely a PE target whether you know it or not.

The 5 Things PE Firms Evaluate First

1. Revenue Quality & Predictability. PE firms value recurring revenue above almost everything else. Subscription models, multi-year contracts, retainer arrangements, and maintenance agreements all signal predictable cash flows. A Nashville healthcare staffing company with 3-year hospital contracts will attract PE interest at premium multiples, while a comparable company rebidding contracts quarterly will face significant discounting. See our guide on 7 things that destroy business value for more on what buyers penalize.

2. Management Team Strength. PE firms don’t want to run your business — they want a team that can run it while they provide capital and strategic guidance. If the founder is the CEO, CFO, head of sales, and primary client relationship holder, PE firms see risk. If there’s a capable management layer handling daily operations, PE firms see opportunity.

3. Margin Profile. EBITDA margins above 15% are the minimum threshold for most PE firms in the lower middle market. Higher margins indicate pricing power, operational efficiency, and room for financial engineering. Below 15%, PE firms may still be interested if growth is strong, but their return models become harder to make work.

4. Growth Runway. PE firms need to generate 2-3x returns in 3-5 years. That means they need businesses that can grow — through organic growth, geographic expansion, new product lines, or acquisitions. A Nashville business growing at 10-20% annually with clear expansion opportunities is exactly what PE firms seek.

5. Fragmented Industry. Many PE firms pursue “buy-and-build” strategies — acquiring a platform company and then making add-on acquisitions in the same industry. If your industry has many small competitors and no dominant national player, you could be an attractive platform acquisition. Nashville industries like healthcare services, construction, staffing, and professional services fit this profile.

What PE Firms Pay in Nashville

Lower middle market PE firms in Nashville typically pay 4-7x EBITDA for platform acquisitions, with premiums for the characteristics listed above. Add-on acquisitions (smaller companies bolted onto an existing platform) often trade at 3-5x. The specific multiple depends on size, growth, industry, and how competitive the process is — which is why having a professional M&A advisor running a competitive process matters. Understanding how EBITDA multiples work helps you benchmark PE offers against market norms.

How to Position Your Business for PE Interest

You don’t need to be perfect — you need to be credible. Clean financials, a strong management team, and a clear growth story are the three table-stakes requirements. Start with a free business valuation snapshot to see where you stand, or invest in a full professional valuation report. Beyond that, focus on the one or two PE-attracting characteristics that are most natural for your business: add recurring revenue if you can, document your processes if they’re informal, or articulate your add-on acquisition thesis if your industry is fragmented.

FAQ

Q: Will I lose control if I take PE money?
A: It depends on the deal structure. Majority PE deals (51%+) mean the firm has control. Minority investments or growth equity deals can preserve your control while bringing capital and expertise. Icon Capital helps structure deals that align with your goals.

Q: What’s the minimum EBITDA PE firms look at?
A: Most lower middle market PE firms target $1M+ EBITDA. Some growth-equity firms will invest at lower thresholds for high-growth companies.

Q: How do I find PE firms interested in my industry?
A: Your M&A advisor maintains relationships with PE firms and knows which ones are actively seeking companies in your sector and size range. This is one of the primary value-adds of working with an advisor versus approaching PE firms cold.

Related reading: Exit Planning at 50 | How to Raise Capital in 2026 | Nashville M&A Resource Center

If you’re considering selling your business, raising capital, or making an acquisition in Nashville or the surrounding region, schedule a free discovery call with Icon Business Advisors.