Year Six and Still Holding: What Buyers Test Before They Believe Your EBITDA Story

A buyer pays for EBITDA it can verify, not EBITDA it is asked to believe.

For a portfolio company in year six of a hold, that distinction decides whether a sale process clears or stalls, and it gets decided on the plant floor, not in the CIM.

The exit backlog makes this urgent. Of roughly 2,500 platform buyouts completed in 2021, 1,869 (about three in four) are still in sponsor portfolios.¹ Most of the response has been financial: continuation funds, amend-and-extend, re-marks. Those buy time. They do not make a business easier to sell.

Why the original value creation plan has expired

The plan written at close assumed a five-year hold and a different market. By year six, the team that wrote it has often turned over. Management incentives were built around an exit that did not happen. Capex and maintenance deferred to protect cash have compounded.

Every portfolio review still asks the same question: which lever gets EBITDA back on track fastest? That is the right question, and the answer depends on the actual condition of the business, whether the gap is volume, labor performance, or equipment downtime. A buyer asks a harder one. Can you prove it?

What do buyers look for in a due diligence?

Operational due diligence is a buyer’s independent test of whether a company’s earnings are real, repeatable, and transferable to a new owner. In a manufacturer, it comes down to four questions, one for each part of the business that decides whether EBITDA holds up:

• Customer: Is the EBITDA coming from demand that is forecast and managed, or from a good quarter? Buyers look for demand planning tied to capacity.
• Process: Can the plant run to that demand? Standard work, balanced lines, and a plan for when volume drops.
• People: Do the results survive the seller leaving? Leadership depth, a management system that runs without heroes, and a safety culture a new owner can inherit.
• Product: Is the margin structural? Where products sell, which characteristics earn a premium, and what cost can be designed out.

Buyers want evidence on all four. In a Forvis Mazars survey, half of PE respondents named operational complexity as a top drag on portfolio performance, and buyers expect reliable, real-time visibility into KPIs.² A company that answers with data has a different conversation than one that answers with a narrative.

Four moves that make operations sale-ready

A Phase Zero diagnostic finds the lever. What follows is how you prove it, in a sequence sized to the time left in the hold.

1. Re-baseline against the thesis and the buyer’s questions. Start from what the original underwriting assumed and what a buyer’s diligence will test first. The gap between the two is your work list.
2. Write the second value creation plan. Size it to the remaining hold, with a time-to-EBITDA for every lever, and put the quickest returns first so gains land before the process starts. Clean KPIs show where the problem sits.
3. Make the numbers provable. There is no better answer to a diligence question than making performance visible: clean operating data, KPIs the plant team reads every day, and a daily management system so reported improvement survives scrutiny.
4. Stage the proof. Sequence results so the movement shows before the next portfolio review and before the sale process begins, and keep the operating talent who produced it in place through the transaction.

What it looks like in practice

A PE-backed manufacturer of RV-market products came to us with a 12–15 month exit target and a long list of possible improvements. We ran a five-week diagnostic across its sites, built a bottom-up view from actual performance to full potential, and removed the factors the company could not control so the target stayed reachable. Projects were grouped into value engineering, operational improvement, and back-office processes.

The result was $13 million of EBITDA improvement, 500 basis points, across 130 savings areas at four sites, including $7 million from value engineering and 61 operational projects worth $5.8 million. What matters is the form of the evidence: every dollar tied to a specific project, which is something a buyer’s diligence team can test.

The same logic held in the steel building systems case in our Phase Zero Playbook: diagnose the real constraint, create measurable value against it, and prepare the company for the buyer’s questions, in that order.

You do not have to do it all at once

Most portfolio teams do not have the people to run every workstream at the same time. That is a resourcing problem, not a strategy problem. A partner can work alongside the portfolio company’s team on each area, in parallel or in series, until it is in place and sustained. If leadership is strong in three of the four areas, use the help on the one that is not.

There is a second payoff. Done well once, the approach becomes a routine: the same bootcamp for incoming leaders, the same coaching, the same KPI standards, applied to every new portfolio company instead of reinvented each time. Plenty of firms talk about this. Fewer do it alongside the plant team through implementation, and that is where results stick.

What it costs to wait

Every quarter without a second plan is a quarter closer to a forced-timeline exit with a weaker story. Start with the diagnostic: Phase Zero identifies which levers matter and sizes them in weeks. Don’t wait and start a Phase Zero scoping conversation now.

Over the coming weeks, we will dive into each of the four areas in turn: customer, process, people, and product.