What Private Equity Looks for in Manufacturing Platform Acquisitions

Private equity has been a dominant force in lower-middle-market manufacturing platform acquisitions for more than a decade, but not every company is “platform-ready.” Understanding what makes a manufacturing business attractive to private equity buyers can mean the difference between a lower 4x-5x multiple and a premium 8x+ multiple exit. 

At Right Street, we specialize in helping niche manufacturers position themselves in the sell-side process as platform-worthy investments. Below, we break down what private equity firms look for when evaluating manufacturing companies for acquisition, recapitalization, or expansion. 

 

1. Platform vs. Add-On: Understanding the Difference 

Not all acquisitions are created equal. Private equity groups typically pursue two types of deals in the manufacturing sector: 

• Platform Acquisitions: These are the first investments used to establish a foothold in a sector. The PE firm seeks a company with strong infrastructure, management, and scalability potential. Manufacturing platform acquisitions usually have $3M–$10M in EBITDA and enough operational maturity to support future bolt-ons.

• Add-On Acquisitions: These are smaller businesses (often with $1M–$3M EBITDA) acquired to expand geography, product lines, or customer bases. 

  
  

Why it matters: Buyers pay a premium for manufacturing platform acquisitions because they serve as the foundation for future growth. Once a platform is established, follow-on add-ons can be acquired at lower multiples, making the overall investment more profitable. 

 

2. EBITDA Scale and Growth Potential 

Private equity firms are primarily financial buyers. Their valuation math starts with EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) because it reflects true operating profitability. 

What PE firms want to see: 

• Consistent EBITDA of at least $3 million, with clean, auditable financials 

• Clear path to organic growth (new contracts, additional capacity, or new verticals) 

• Room for margin improvement through cost reduction, automation, or pricing power 

  
  

Tip: If your EBITDA is below $3 million, buyers may still be interested, but likely as an add-on, not a platform. The key to achieving platform status is showing how your business can scale with additional capital and infrastructure. 

 

3. Strong and Committed Management Team 

One of the most common deal-breakers in lower-middle-market manufacturing is owner dependency. PE firms need to know that the business can operate and grow without the founder in the day-to-day. 

What they evaluate: 

• Depth of management bench: operations, finance, and sales leadership 

• Willingness of the owner to stay on post-close (typically 6–24 months) 

• Succession planning for key technical or production roles 

  
  

Private equity buyers will often structure deals with management equity rollovers, allowing owners and key team members to retain 10–30% of the business. This aligns incentives and gives the seller a “second bite of the apple” when the PE firm exits in 3–7 years. 

 

4. Differentiated Capabilities and Defensible Niche 

PE investors are not looking for generalist machine shops, they want defensible, niche players with unique capabilities when it comes to their platform investments.

Examples of differentiation that command premium valuations include: 

• Proprietary tooling or in-house engineering design capabilities 

• Specialized materials expertise (e.g., titanium, Inconel, composites) 

• High precision tolerances, certifications (AS9100, ISO 9001, NADCAP) 

• Long-term customer contracts in regulated industries like aerospace, defense, or medical 

  
  

In short: The more specialized your processes and customer relationships, the harder you are to replace and the more valuable you become. 

 

5. Customer Concentration and Backlog Visibility 

Buyers scrutinize customer concentration more than almost any other factor. If one customer accounts for 40% or more of your revenue, expect heavy diligence and possible valuation discounts. 

What private equity wants: 

• A diversified customer base, ideally with no single customer over 25–30% of sales 

• Multi-year backlog or blanket purchase orders showing revenue visibility 

• Evidence of recurring relationships or sole-source supply status 

  
  

Manufacturers that can demonstrate predictable, repeat business will always attract stronger offers and more favorable deal structures. 

 

6. Financial Systems and Reporting Sophistication 

Private equity investors expect reliable, GAAP consistent reporting. A lack of internal financial controls, inconsistent job costing, or outdated accounting software signals risk. 

Ways to strengthen your financial reporting before a sale: 

• Implement a robust ERP or MRP system (JobBOSS, Epicor, or E2 Shop System) 

• Perform a third-party Quality of Earnings (QoE) report before going to market 

• Separate personal expenses and clean up addbacks well in advance 

  
  

Accurate, timely reporting demonstrates institutional readiness, which is a key characteristic of any true platform business. 

 

7. Operational Scalability 

PE firms seek companies with capacity headroom and the systems to scale efficiently. They want to know that growth won’t require a complete operational overhaul. 

They’ll ask: 

• Is there unused capacity on existing CNCs or production lines? 

• Can new shifts or additional crews be added without major capital investment? 

• Are there documented standard operating procedures (SOPs)? 

  
  

A manufacturer with scalable infrastructure and repeatable systems can grow revenue with limited incremental cost—a major value driver. 

 

8. Industry Tailwinds and Strategic Fit 

Private equity firms invest thematically. They look for manufacturing sectors with long-term growth drivers, such as: 

• Reshoring and domestic supply chain resilience 

• Defense modernization and aerospace spending 

• Renewable energy components and industrial automation 

• Medical device precision machining 

  
  

A business aligned with favorable industry trends fits naturally into a firm’s investment thesis, increasing competitive tension and valuation. 

 

9. Deal Structure Preferences: Rollover Equity and Earnouts 

Private equity firms prefer aligned partnerships over one-time purchases. Most platform transactions involve: 

• Majority recapitalization: Seller retains 10–30% ownership post-close 

• Earnouts: Additional payments tied to revenue or EBITDA growth 

• Employment or consulting agreements for key executives 

  
  

For owners, a minority rollover can significantly enhance total proceeds, especially if the PE firm grows the platform through add-on acquisitions. 

 

10. How to Position Your Manufacturing Business as a Platform 

If your goal is to attract private equity buyers (and command a premium valuation), preparation is everything. Here’s how to start: 

• Conduct a sell-side Quality of Earnings review to validate EBITDA 

• Build a management team with clear post-close continuity 

• Diversify customer relationships and expand recurring contracts 

• Document systems, certifications, and process controls 

• Partner with a specialized investment banker who knows how to run a confidential, competitive sale process 

 

Private equity groups continue to invest aggressively in U.S. manufacturing, especially in precision, aerospace, industrial automation, and defense-related verticals. But platform-ready companies stand apart by having scale, systems, and sustainability.

If you’re considering selling your manufacturing business or bringing on a growth partner, understanding these buyer priorities will help you maximize value and control your outcome. 

Contact Right Street for a confidential discussion or preliminary valuation assessment.