How Family Businesses Attract Private Equity in Energy
- Brandon Chicotsky
- Jan 14
- 16 min read
Family-owned energy businesses can secure growth by partnering with private equity (PE) firms, which provide funding and expertise in exchange for equity stakes. However, balancing growth with preserving the family legacy is critical. Here’s a quick breakdown:
Why Private Equity? PE firms offer more than capital - they bring strategic guidance, operational expertise, and risk tolerance, unlike traditional bank loans.
Key Challenges: Family businesses must address leadership transitions, owner dependency, and cultural alignment with PE firms, whose short-term exit strategies may clash with long-term family goals.
Preparation Tips:
Optimize financials by focusing on metrics like EBITDA or SDE.
Transition to GAAP accounting and conduct a Quality of Earnings (QofE) assessment.
Establish governance systems, including succession plans and incentive structures.
Protecting Legacy: Selling minority stakes (10-49%) can provide capital while maintaining control. Tailored deal structures and family charters help align PE goals with family values.
Choosing the Right PE Firm: Evaluate firms based on investment focus (e.g., fossil fuels vs. renewables), track record, and alignment with your business goals.
Private equity offers a path to growth without losing control - if planned carefully. For smaller energy businesses, firms like God Bless Retirement provide confidential support to navigate the process.
Preparing Your Family Energy Business for Private Equity Investment
When private equity firms evaluate energy businesses, they focus on specific financial metrics to gauge their potential. For companies valued over $10 million, Adjusted EBITDA takes center stage. This metric - earnings before interest, taxes, depreciation, and amortization - is adjusted to exclude family-specific expenses like owner salaries, perks, and one-off costs [8][9]. Essentially, it highlights the business's true cash-generating ability, independent of its current ownership or financing structure. For smaller firms (under $10 million), investors typically look at Seller's Discretionary Earnings (SDE), which represents the total cash flow available to a single owner [9].
In sectors that rely heavily on physical assets, such as upstream oil and gas or midstream infrastructure, private equity firms often prioritize EBIT over EBITDA. This is because depreciation and amortization serve as indicators of the significant capital investments needed to maintain or upgrade equipment [8]. Beyond profitability, investors also examine growth factors like stable cash flows, recurring revenue streams, and low customer concentration. Ideally, no single customer should account for more than 50% of total revenue [8][9]. Another critical consideration is whether the business can operate smoothly without the founding family members. A high level of "owner dependency" can lead to a lower valuation [9]. Together, these metrics provide a foundation for identifying areas where operational improvements can unlock more value.
Improving Financial Performance and Growth Potential
Before engaging with private equity firms, family businesses should undertake a sell-side Quality of Earnings (QofE) assessment. This process validates EBITDA and helps separate recurring revenue from one-time gains [11][7]. It’s a crucial step in showing investors which aspects of financial performance are likely to persist after the sale. Transitioning from cash-basis to accrual-basis accounting (GAAP) is another must, as private equity investors require standardized and transparent financial reporting [11].
Addressing structural issues is equally important. For example, if the business initially raised capital from friends or family under restrictive terms, those agreements should be renegotiated. Private equity firms are unlikely to accept being subordinate to earlier equity holders [3]. Creating a "tax fact book" is another key step. This document outlines the business’s legal structure, tax filing history, and any compliance risks, helping to avoid surprises during the deal process while uncovering potential tax benefits [7][11]. Once the financials are optimized, the next step is to establish strong governance systems to further bolster investor confidence.
Setting Up Professional Governance Systems
Governance plays a pivotal role alongside financial performance. Private equity firms expect businesses to have formal reporting systems, advanced forecasting tools, and external advisors who can independently verify key metrics [7]. Implementing a Long-Term Incentive Plan (LTIP) for executives is another critical move. Such plans align management compensation with value creation, which is often a dealbreaker for private equity sponsors [3]. These incentives ensure that top talent remains motivated throughout the investment period.
Succession planning is another area that demands attention. By identifying and developing future leaders early, businesses reduce risk and demonstrate their ability to thrive beyond the current generation [7][3]. Additionally, reviewing restrictive covenants is essential. For instance, if team members are bound by non-compete agreements from previous employers, this could limit the business’s ability to operate in certain markets - something that will raise concerns for investors. Taking a buyer’s perspective and working with outside advisors to address potential due diligence issues positions family businesses as strong candidates for private equity investment [7]. This approach not only supports long-term growth but also ensures the family’s legacy remains intact.
Protecting Family Legacy While Growing with Private Equity
Bringing private equity into your business can be a way to secure growth while safeguarding your family's vision and maintaining control. When structured thoughtfully, such partnerships can provide the capital needed to expand without compromising the values that have shaped your business for generations. While succession planning often presents challenges, especially highlighted in global studies, family-owned energy businesses in the U.S. must take proactive steps to ensure their legacy remains intact. Strengthened financials and governance can support this goal, but preserving your legacy should always stay at the forefront.
Setting Up Succession Plans and Control Terms
One way to retain control while accessing growth capital is by selling a minority stake, typically ranging from 10% to 49%. This approach allows families to maintain majority voting power while still raising funds for expansion [6][7]. Control can also be preserved through carefully negotiated agreements, such as securing board seats, observation rights, or veto powers over critical decisions [6][7].
"The top priority for family business owners is usually maintaining control of their company. This can be achieved, however, without family members owning all of the equity." – Bryant W. Seaman III, Head of Private Asset Advisory at Bessemer Trust [6].
Tailored deal structures, such as using minority stakes, preferred stock, or pre-set valuation formulas, can help protect family control while minimizing liability [6][7]. Interestingly, about 18% of family business leaders rely on selling their companies to fund retirement, yet only 20% to 30% of businesses listed for sale actually find buyers [5]. This underscores the importance of strategic planning to ensure long-term success.
Maintaining Family Values During Growth
Preserving your family's values is just as important as securing growth capital. A misalignment between a private equity firm’s profit-driven strategies and your family’s heritage can lead to conflict. In some cases, families have even bought back their businesses to restore their original values [5].
"Capital alignment is important when you need external capital to grow... This is vital for preserving multigenerational control." – Gene Peck, Managing Director at EY's Family Enterprise Business Services [10].
Before entering into any agreements, assess potential investors based on factors like risk tolerance, governance style, cultural alignment, strategic goals, and liquidity preferences [10]. For example, 63% of next-generation family business leaders believe it’s crucial for the family business to maintain ownership of its intellectual property [7].
Creating a family charter can further solidify your mission and provide clarity during periods of leadership transition. This document outlines decision-making roles for trustees, directors, and family councils, helping to reduce uncertainty as the business grows [12].
Traditional private equity firms often operate with investment horizons of 5 to 7 years, while family offices typically take a longer-term view, ranging from 8 to 10 years or more. This extended perspective makes family offices appealing partners for those focused on preserving their legacy [6]. Notably, studies reveal that 75% of business owners regret selling their business within a year if they fail to engage in thorough pre-transaction planning. This highlights the importance of aligning with investors who share your long-term goals [12].
Finding the Right Private Equity Firms in Energy
Private equity firms don't all approach energy investments the same way. Some focus on traditional oil and gas ventures, while others are deeply invested in renewable energy and emerging energy transition technologies. Choosing the right partner means finding a firm whose investment philosophy, sector expertise, and timelines align with your goals - whether you're committed to preserving a legacy or embracing the shift toward renewables.
The energy private equity landscape is vast, with firms managing billions in capital. This reflects strong investor confidence and significant funding available for growth. As of January 2025, 65% of energy portfolio companies held by 20 major private equity firms were still rooted in fossil fuels [14]. However, many are gradually shifting toward renewables, driven by increasing power demands from data centers and other sectors.
Understanding how a firm operates is crucial. For example, EnCap Investments employs a "management-team-centric" model, working closely with existing leadership rather than replacing them with external operators [17]. This approach can be appealing for family businesses that want to maintain operational control and safeguard institutional knowledge. On the other hand, some firms prefer to bring in their own operating partners to drive change. While this can bring valuable expertise, it might feel disruptive if your family is deeply involved in daily operations.
Comparing PE Firms by Investment Focus and History
When evaluating potential private equity partners, it’s important to look at their sector focus and track record. The table below highlights some major energy-focused firms, their primary investment areas, and recent activities:
PE Firm | Primary Energy Focus | Notable Recent Activity | Fossil Fuel Portfolio % (Jan 2025) |
EnCap Investments | Upstream, Midstream, Transition | Closed $6.4B fund; $4.275B Permian exit (April 2023) [1][17] | ~65% |
Quantum Capital Group | Traditional Energy, Gas-fired Power | Closed $10B fund; Acquired Cogentrix portfolio [1][14] | 96% |
Energy Capital Partners | Power Generation, Geothermal | $16.4B sale of Calpine to Constellation (Jan 2025) [15] | N/A |
BlackRock (GIP) | Infrastructure, Midstream Gas | Doubled fossil fuel holdings via GIP acquisition [14] | 41% |
Partners Group | Natural Gas, Grid Optimization | Acquired 11 gas plants in California for $2.2B (March 2025) [15] | N/A |
Pelican Energy Partners | Nuclear Services | Raised $450M for nuclear-focused fund [15] | N/A |
This comparison highlights key differences. For instance, Quantum Capital Group holds a 96% fossil fuel portfolio, making it an ideal choice for businesses committed to traditional energy sectors. In contrast, BlackRock’s 41% fossil fuel ratio reflects a more balanced strategy, especially after acquiring Global Infrastructure Partners [14]. Meanwhile, Energy Capital Partners showcased its ability to deliver strong returns by selling Calpine Corporation for $16.4 billion in January 2025, quadrupling its original $5.6 billion investment after taking the company private in 2018 [15].
Exit history is another critical factor. EnCap Investments, for example, executed a $4.275 billion sale of three Permian-based companies - Black Swan Oil & Gas, PetroLegacy, and Piedra Resources - to Ovintiv in April 2023 [17]. This demonstrates their strategy of consolidating management-led teams for large-scale exits, which can maximize value but may influence how your family’s legacy is preserved after a sale.
Ranking PE Firms by Fit with Your Business
Once you’ve identified firms with relevant expertise, rank them based on how well they align with your growth plans and family values. Consider their investment timelines. Traditional private equity firms often operate on 3- to 5-year exit cycles, while family offices may take an 8- to 10-year view or longer [16].
If your business is exploring decarbonization, assess whether a firm sees sustainability as a genuine opportunity or merely a regulatory requirement. Research shows that portfolio companies held by private equity firms for more than two years triple their use of renewable energy compared to those in earlier stages of ownership [13]. This suggests that longer-term partnerships can support meaningful transitions.
"Our view is that demand is real, it's going to be persistent, and it's going to need an 'all of the above' power solution to satisfy that demand." – Matt Kestenbaum, Managing Director at EQT Partners [15].
Also, evaluate a firm’s ability to provide operational support for business transformation and digital integration, especially if you’re scaling quickly or pivoting toward new technologies. Their experience navigating policy changes - such as updates to the Inflation Reduction Act or new tariffs - can also be a deciding factor [1].
Finally, look for firms with a history of reinvesting alongside the same management teams. This "repeat team" pattern reflects a partnership-oriented culture and a commitment to trust and long-term relationships [17]. For family businesses, this approach often aligns better with values and vision than transactional deals.
Reaching Out to Private Equity Firms and Structuring Deals
Once you've pinpointed potential private equity partners, the next step is all about preparation and outreach. This phase requires meticulous planning to safeguard confidential information while showcasing your business in the best possible light. Many family businesses choose to collaborate with investment banks or business brokers to handle the sell-side process. These professionals ensure that confidentiality agreements (NDAs) are in place before sharing any sensitive details [18][4].
The process typically begins with a teaser document. This is a brief, 1–2 page anonymous summary that outlines key financial metrics and a general business description - without disclosing your company’s identity [18][4]. The goal here is to spark interest among potential investors. Once a firm shows interest and signs an NDA, you’ll provide them with a Confidential Information Memorandum (CIM). This detailed document, often 30–40 pages long, dives into your operations, investment thesis, and growth projections [18][4]. Additionally, an operating model is essential - it breaks down revenue and costs in detail so investors can forecast financial performance accurately [4]. Before diving into in-depth discussions, ensure your financials are rock-solid.
It's also crucial to update your financial validation to align with GAAP standards before outreach [11]. This step helps identify any compliance risks ahead of time. Consider this: since 2014, private equity firms have raised over $200 billion for energy investments, with at least $50 billion earmarked for shale drilling [2]. Moreover, North American private equity firms are sitting on about $1 trillion in "dry powder", signaling a substantial pool of capital looking for promising opportunities [4].
Creating Business Presentations and Valuations
To make your business stand out, your presentation must be thorough and compelling. It should detail how your company plans to outpace competitors, outline the resources needed, and provide clear projections of results [11]. A strong management presentation highlights your team’s vision, capabilities, and ability to attract and retain top talent. Before hitting the market, adjust your financial statements to show a "normalized" EBITDA by excluding non-recurring expenses - this helps maximize your business's perceived value. Additionally, securing trademarks, patents, and copyrights can reassure investors that your assets are well-protected.
Organizing your documents in a Virtual Data Room (VDR) is another critical step. Using a secure platform, you can neatly arrange board reports, property agreements, and employee contracts [18][4]. This not only speeds up the due diligence process but also demonstrates professionalism. Addressing compliance issues early on - through internal audits of regulatory, privacy, and environmental requirements - can prevent potential roadblocks during negotiations.
Structuring Deals to Share Equity and Control
Once your materials are ready, the focus shifts to structuring the deal. The structure will depend on your family’s goals and how much control you want to retain. For instance, minority capital investments allow you to sell up to 49% of your equity. This approach provides growth funding or liquidity for family shareholders while letting you maintain majority control [6]. It’s often a strategic first step to establish a valuation benchmark and test the partnership before committing to a full sale.
As Bryant W. Seaman III, Head of Private Asset Advisory at Bessemer Trust, explains:
"The top priority for family business owners is usually maintaining control of their company. This can be achieved, however, without family members owning all of the equity." [6]
Deal structures often include preferred stock with fixed, participating, or convertible features. Investors may gain board seats and approval rights over major decisions like acquisitions or capital expenditures, but they typically avoid day-to-day management [6].
Buy/sell agreements are another tool. They can specify a fixed investment term, followed by either a family repurchase or a sale of control, often using pre-agreed valuation formulas like EV/EBITDA multiples [6]. Private equity investors usually aim to exit within five years, while family offices often prefer longer horizons of 8–10 years [6][11].
For energy-related deals, be prepared to discuss hedging strategies for commodity prices or interest rates, as private equity buyers often request these before closing [2]. Simplify the buyer’s exit by negotiating whether pre-existing obligations will be retained or transferred [2]. You might also need a Transition Services Agreement (TSA), where your family provides operational support for a set fee post-closing.
Finally, understanding the economics of private equity is key. Sponsors generally face a 7%–8% cost of capital [3], charge a 1.5%–2% management fee on committed capital for 4–5 years [3], and take 20% of the remaining profits as carried interest [3]. Management teams usually contribute 1%–10% of the total equity [2].
Using Business Brokers for Confidential Private Equity Introductions
Once you've solidified your financial and governance groundwork, protecting confidential information becomes a top priority. Confidentiality is crucial during private equity discussions to avoid leaks that could harm your business. Many energy family businesses turn to business brokers to act as intermediaries, ensuring sensitive information stays secure while attracting serious investors. These brokers create a "cone of silence" by routing all buyer inquiries through a single advisor, keeping the process tightly controlled. They also draft unilateral non-disclosure agreements (NDAs) to protect proprietary data - including the fact that your business is considering a sale - ensuring access is limited to those who genuinely need it [19].
How God Bless Retirement Supports Energy Family Businesses
For energy family businesses with less than $25M in EBITDA, God Bless Retirement offers tailored services designed to complement these confidentiality efforts. They start with a free preliminary valuation and a confidential consultation. If you proceed, their full listing service includes certified business valuations, buyer sourcing, and strategic marketing - all conducted under strict confidentiality. But they don’t stop there. God Bless Retirement connects you with a network of CPAs, financial planners, and private equity experts to help ready your business for institutional investment. According to Heritage Capital Group, sellers who work with transaction advisors achieve pricing multiples that are, on average, 20% higher compared to those who go the For Sale by Owner route [22].
Why Confidentiality and Professional Representation Matter
Maintaining confidentiality does more than protect the deal - it also safeguards the reputation of your family business. Mishandling sensitive information can derail negotiations entirely. Brokers manage every step of the process, from sharing anonymous teasers and securing NDAs to ensuring due diligence doesn’t begin without solid legal protections in place [20]. They also ensure potential buyers cannot contact your employees, officers, customers, or vendors without prior written consent [19].
Having professional representation brings another layer of advantage during negotiations. As Thompson Coburn LLP explains:
"An experienced investment banker can create a process or the appearance of a process, which can be leveraged to keep the buyer honest" [21].
This strategy helps level the playing field, especially when dealing with private equity firms that often push for lower valuations. With North American private equity firms holding an estimated $1 trillion in "dry powder" for new investments [4], working with a knowledgeable broker can significantly impact both the price and terms of your deal.
Conclusion: Growing Your Business While Protecting Your Legacy
Private equity offers a way to drive growth while preserving what makes your business unique. To make the most of this opportunity, start by setting clear financial goals, strengthening your governance structure, and refining your financials. A quality of earnings analysis can help identify any gaps, and addressing operational inefficiencies ahead of time ensures you're ready when investors come knocking. Don’t overlook succession planning - especially since only 30% of family-owned businesses have formal plans in place [5].
When preparing to bring in private equity, focus on aligning your capital needs with your values. As Gene Peck from EY puts it:
"Capital alignment is important when you need external capital to grow... especially critical for families that intend for future generations to retain family ownership control" [10].
Choosing the right private equity partner requires a careful look at key factors like risk tolerance, governance, company culture, strategic vision, and liquidity [10]. These elements form the foundation of every major decision you'll make together.
Private equity doesn’t mean giving up control. Instead, it’s about gaining access to growth capital while staying true to your business’s roots [7]. The strong market appetite for energy investments, such as EnCap’s recent $6.4 billion fund close [1], gives energy family businesses a unique advantage to negotiate from a position of strength.
For family-owned energy businesses with EBITDA under $25 million, God Bless Retirement provides a tailored approach, offering certified valuations, buyer sourcing, and a network of CPAs, financial planners, and private equity experts. Their services are designed to maintain confidentiality while helping businesses secure the capital they need to grow - without losing sight of the legacy that defines them.
FAQs
How can family-owned energy businesses attract private equity while preserving their legacy?
Family-owned energy businesses can secure private equity funding while protecting their legacy by treating the partnership as part of a long-term succession strategy - not just a financial deal. The first step is to define the family’s vision, core values, and governance priorities. Document these in a formal succession plan that details how ownership, decision-making, and strategic goals will be maintained after the investment.
To meet private equity expectations, develop a well-structured financial plan that balances the family’s legacy with the investor’s growth objectives. This plan should address liquidity requirements, establish measurable growth targets, and include governance terms like board composition and veto rights to ensure the family retains influence over major decisions. Families might also explore options like selling a partial stake or keeping minority ownership to secure funding while benefiting from future growth.
Working with a specialist broker, such as God Bless Retirement, can streamline this process. These brokers provide confidential business valuations, connect owners with private equity partners who respect legacy goals, and offer access to trusted advisors like CPAs and financial planners. With careful preparation and the right guidance, family-owned energy businesses can access the capital they need while preserving their values and traditions for generations to come.
What key financial metrics should family-owned energy businesses focus on to attract private equity investment?
To draw private equity investment, family-owned energy businesses should pay close attention to a few key financial metrics. These include the price-to-earnings (P/E) ratio, which shows how the company’s valuation stacks up against its earnings, and the internal rate of return (IRR), which measures how profitable an investment is over time.
Other important indicators are the multiple on invested capital (MOIC) and the distributed-to-paid-in (DPI) ratios, both of which provide insights into returns and how cash flow is distributed.
By focusing on these metrics and working to improve them, businesses can make themselves more appealing to private equity firms while staying aligned with their long-term legacy goals.
How can family-owned energy businesses find the right private equity partner?
Finding the right private equity (PE) partner for a family-owned energy business is a process that requires careful thought and planning. Start by identifying your family's key priorities - like preserving control, governance preferences, and your long-term vision for the business. Once you’ve outlined these goals, seek out a PE firm whose investment strategy and expertise align with your objectives. Firms with experience in energy transitions, such as renewable energy projects or evolving from traditional oil and gas operations, can offer valuable guidance and resources.
When evaluating potential partners, focus on their track record, governance approach, and whether their values align with your family’s. Look at how they navigate ownership structures, succession planning, and complex regulatory requirements. It’s also important to understand their fee structures, level of transparency, and how they plan to support your family’s broader goals beyond just financial returns.
For personalized assistance, God Bless Retirement provides discreet support, certified business valuations, and connections to a network of experienced private equity professionals. Their tailored services help ensure you find a partner that matches both your financial ambitions and your family’s legacy.
