Know Who You’re Selling To: Sequoya Borgman on Private Equity and Preparing for an Exit
On this episode of The Exit - Presented by Flippa, host Steve McGarry speaks with Sequoya Borgman, Founder and CEO of Borgman Capital. Drawing on two decades in public accounting and a decade leading lower middle market leveraged buyouts, Sequoya shares practical guidance for business owners considering a sale. The conversation covers the financial and human factors that determine deal viability, the timeline required to prepare a company for market, and the mechanics of private equity return models. Sequoya also explains why sellers must diligence potential buyers as thoroughly as buyers evaluate targets, ensuring alignment on culture, debt obligations, and long-term goals.
Listen to the full episode to hear Sequoya's complete perspective on lower middle market transactions and exit planning.
Key Takeaways
Financial Health Earns Attention, but People Determine Conviction
When evaluating potential acquisitions, Borgman Capital reviews approximately 1,500 companies each year to complete three to five investments. Initial screening focuses strictly on financial durability, cash flow health, and fit within a leveraged buyout model. Once a company meets these numerical benchmarks, the evaluation shifts entirely to people. Assessing the founder, the management team, and the organizational culture becomes the primary focus. In lower middle market companies, human capital represents both the greatest operational risk and the largest potential upside following a transaction.
Sellers Must Diligently Vet Potential Buyers
Transaction mistakes typically stem from partnering with the wrong individuals or failing to establish transparency early in the process. Business owners should vet private equity buyers with the same rigor buyers apply to target companies. Sellers need to understand how a buyer constructs its capital stack and generates returns. Transitioning from a lifestyle or family business to a leveraged capital structure introduces debt service obligations that require operational adjustments. Misalignment regarding these post-close expectations can impair the business and damage the founder's intent.
Exit Readiness Requires Years of Professionalization
There is no single mechanically perfect time to sell a business. A successful transaction requires aligning business readiness, market conditions, and the personal timeline of the owner. Preparing a company for market typically requires a couple of years. During this period, owners should professionalize operations, strengthen the management layer, and resolve operational or financial risks that buyers would otherwise address through purchase price reductions.
Management Equity Aligns Incentives and Creates Ownership
To maintain momentum after a founder transitions out of daily operations, private equity buyers often set aside a meaningful equity pool for the management team. Allowing key managers to earn or invest into equity transforms employees into business owners. This structure aligns the management team's financial outcomes with the investor's performance targets, creating direct motivation for entrepreneurial leaders and opening pathways to generational wealth.
Questions Addressed in the Conversation
What criteria does Borgman Capital use to evaluate lower middle market acquisitions?
Borgman Capital targets established lower middle market companies, primarily family- or founder-led businesses with revenues under $150 million and EBITDA under $20 million. Target companies typically have at least two decades of operating history, an established management team, a proven business model, and experience navigating economic cycles. Borgman Capital acts as the first institutional investor across older, stable industries such as manufacturing, distribution, and food companies.
How does debt paydown generate equity value in a leveraged buyout?
In a standard leveraged buyout structure, an acquisition is funded using a combination of debt and equity. For example, acquiring a company for $50 million might involve $25 million in debt and $25 million in equity. Over a typical five-year holding period, the company's operating cash flow is used to amortize the debt. Paying off the $25 million debt balance doubles the equity value of the investment, producing an annual internal rate of return just under 20% before accounting for operational growth or efficiency improvements.
How long does the transaction process take after signing a Letter of Intent?
Once a seller and buyer agree to terms and sign a Letter of Intent (LOI), the formal process of completing diligence, securing bank financing, and drafting purchase agreements typically takes about 90 days. However, formal deal execution is often preceded by months or years of relationship building between the buyer and the business owner.
From the Conversation
“The main thing I’ve learned over the last three decades is really around partnering with good people—making sure you trust each other and are aligned on incentives and what the ultimate goal is.”
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This transcript has been edited for clarity and readability. Please refer to the original podcast recording for the complete conversation.
Introduction & Background
Steve McGarry: All right, I am here with Sequoya Borgman, and he is the founder and CEO at Borgman Capital. How's it going, Sequoya?
Sequoya Borgman: Ah, pretty good. Thanks for having me on the show.
Steve McGarry: Yeah, of course. I love doing episodes that are really focused around tactics and how to really help operators. So, before we get to kind of the nitty-gritty, let's talk about you and your background. How did you get started?
Sequoya Borgman: Yeah. Well, I started out getting my master’s and undergrad in accounting back in college and started out in public accounting like a lot of people do. I worked for Arthur Andersen at a time—one of the big firms that's no longer around—but spent about 20 years working in Big Four and big international firms. I really focused on transactions and M&A, working on a lot of different deals and working with a lot of different private equity firms.
So that's kind of how I got the background. After doing that for almost two decades, I got the itch to work on the other side of the table and left and launched the firm about 10 years ago.
We've been investing in the lower middle market. We're a lower middle market leveraged buyout shop. We've bought over 20-some companies since we launched. We've got people in five locations around the country, and we are pretty active. We've done a couple of deals this summer and have a couple more in the works. So, that's kind of our background and how we got where we're at.
Steve McGarry: Very cool. Is there a specific niche that you focus on and the type of business that you're looking for with acquisitions?
Sequoya Borgman: Yeah, we're investing in the lower middle market. So that tends to be family businesses, founder-led businesses—businesses kind of on the smaller side under $150 million in revenue and under $20 million in EBITDA. Those sized businesses are still sizable transactions, but tend to be either family-led—first, second, or third generation—or founder businesses.
All our investments are really established businesses that have been around a couple of decades at least. They have an established management team, an established business model, and have been through some cycles. We're really the first institutional investor in those businesses.
We invest in all different types of industries. It tends to be older industries since these are established businesses: manufacturers, distributors, food companies, you name it. We've really invested from coast to coast at this point. I'm here in Milwaukee, but we've got offices in Indianapolis and Minneapolis, and we've got people on the West Coast and somebody down in Florida as well. So, we kind of cover the gamut.
What Buyers Look For & Buy-Side Diligence
Steve McGarry: Nice. So, when it comes to preparing a business—I think this will be valuable for people operating and listening to this—what are some things on the buy side that you're looking for? Things that you like to see when somebody is fully prepared, like their data room looks great? What are some of the things that stand out to you immediately when you know that somebody's prepared?
Sequoya Borgman: The first thing we look at is the numbers. We look at probably 1,500 companies a year to invest in three, four, or five businesses. I'm a numbers guy with an accounting background, so cash flow and how healthy the business is—and whether it fits the leveraged buyout model—is number one.
Once we narrow it down and have an interest in the business, number two is just the people. It's all about people. That's the biggest risk and the biggest upside for these businesses: evaluating that founder, evaluating that business owner and their management team. That's what we spend the most time on after we look at the financials and the normal diligence that goes into a transaction.
Steve McGarry: Got it. Got it. One of the most valuable questions is timing. In your experience with these mid-market companies that have been around for a couple of decades, when is the right time to sell a business?
Sequoya Borgman: Well, usually you only sell once unless you're a serial entrepreneur. Most family businesses or founder businesses we're buying, the individuals are about retirement age or it's been in the family for several generations.
There's no perfect time. You want to sell when the business is ready to sell. It usually takes a couple of years to get it to that point—to professionalize it and address some of the risks that a buyer would ding you on for a purchase price.
You also want to sell when it's a good deal market. Right now, it's been a little bit of a softer market, so you may want to hold it a couple more years and wait to see if the market comes back. Or maybe your business is really capitalizing on what's going on in the economy, and maybe it is time to exit.
It really comes down to what that individual wants to do. You can always hold longer, but eventually, people want to spend more time with their family, or step out and retire or move down to Florida. That seems like the M.O. for a lot of these businesses we're investing in. I'm sure you have a lot of those down in your area.
Steve McGarry: Yeah, for sure. That is a well-paved path. Before we get into mistakes, I do want to mention that we both went to the same college, ECU. So, shout out to ECU! I was really excited to do this with you just because it's a fun connection.
Sequoya Borgman: Yeah, it's a small alumni community, especially for somebody from Florida and Wisconsin right now. Small world for sure.
Common Seller Mistakes & Post-Transaction Alignment
Steve McGarry: Small world for sure. So, I wanted to give that quick shout-out as we segue into mistakes. What are the key mistakes that you have seen? A lot of young people in college or university right now might be listening to this, and mistakes are probably the most valuable lesson people can learn from. On the buy side, what are some mistakes that you've made or seen sellers make, and what knowledge can you share with the younger crowd listening?
Sequoya Borgman: Most of the issues are found in diligence. Diligence is pretty onerous, going through a process. But really, mistakes for the most part revolve around people. That's where we spend a lot of our time—where we've hired the wrong people or partnered with the wrong people. Those are expensive mistakes that can really impact your investment.
It can impact sellers too. If you're a seller, there are thousands of private equity firms and thousands of buyers out there. You want to make sure you vet that buyer as much as they're vetting you. Make sure you're aligned on interests and what they're looking for. Make sure you understand the private equity leveraged buyout model and how they're making money. That may be different than the way you're running the business, perhaps as a lifestyle business. Once that business is leveraged and has debt, there are changes that need to occur for that investor to make the return they expect.
Sometimes the biggest mistakes are just not being aligned and not being upfront with each other at the beginning of the transaction. The main thing I've learned over the last three decades is really around partnering with good people—making sure you trust each other and are aligned on incentives and what the ultimate goal is.
Steve McGarry: With family-run businesses, team and people are at the forefront for sure. In general M&A, the team is crucial. What are some creative things you've done to keep people excited and motivated after a transaction when the owner transitions out? What tactics have you used to keep people on board after the buyout?
Sequoya Borgman: It's not unique to us, but most private equity firms, us included, set aside a big chunk of equity for that management team to earn or invest in that business. They become business owners, so their interests are aligned with ours. If we do well in our investment, they can make life-changing, generational wealth out of that transaction as well. That really motivates entrepreneurial individuals who want to grow and build something successful.
We also focus on continuing whatever culture and legacy that founder started—continuing to support their charities, their communities, and those employees. Whatever made that company special, we don't want to mess that up. We're not buying turnarounds, restructurings, or suffering businesses. These are all strong, successful, cash-flowing companies with nice cultures.
If we go in there and feel like people aren't making eye contact or it's not a great culture, we don't go after those investments. It has to be a good culture with an owner who really cares about their employees and what happens to that business after we invest. If an owner just wants a check and to walk away, those aren't the investments we want to be involved with.
Mechanics of a Leveraged Buyout (LBO)
Steve McGarry: You mentioned leverage a couple of times, like leveraged buyouts. Could you walk us through step-by-step how a deal works for people listening who might be unfamiliar? What is the timeline? How long does it take? What does it look like when lining up your capital stack? Are you raising money individually for each deal, or do you have credit lines?
Sequoya Borgman: There are a lot of different types of investors out there: venture capital, angel, growth equity. We fall into the leveraged buyout category, which means buying established, cash-flowing businesses using a certain amount of debt.
For example, if you pay $50 million for a business, you might put in $25 million of debt and $25 million of equity. You pay down that debt over say five years using the cash flow from that business. Doing so doubles the equity value of your investment. That's a decent return—just under a 20% annual IRR—and that's without creating any additional value or improving the business, which of course we and other private equity investors focus heavily on through a full value creation plan.
Sellers need to understand that if we put 100% equity into a business, it's very difficult to meet the return hurdles that private equity requires. You might as well be investing in the stock market, especially given returns today.
Regarding the timeline: once we agree to terms with a seller and sign an LOI, working toward a purchase agreement is about a 90-day process. However, we may talk to a seller for two years before reaching that point. Sometimes it's a shorter process—we've closed deals in as few as 60 days, and I know other firms do things in 30 days. We take a little longer to conduct complete diligence.
During that process, if it's an add-on acquisition to an existing platform, that capital, equity, and debt may already be lined up. If it's a new platform, we raise those funds and secure bank term sheets during that 90-day LOI period so everything is ready to go toward closing. That's when the clock starts ticking.
Steve McGarry: In your experience, when is the right time for a firm to sell assets? Are you holding in perpetuity, or what is the strategy with the businesses themselves? Are you selling to different firms on a certain timeline?
Sequoya Borgman: It's hard to determine when you're going to sell going into an investment. You don't know what the economic environment, buyer interest, or business performance will look like. What I've learned over my career is that you kind of know when it's time to sell. You'll receive a lot of inbound interest, the business will be performing well, and it's important not to get greedy. We usually exit when we see that we're exceeding our investment expectations and there are plenty of interested buyers.
At the same time, it's hard to find really good businesses. For great cash-flowing businesses where you've already paid down all the debt, there's no pressing reason to sell as long as our investors and LPs are happy with their returns. You might as well hold them long-term and issue distributions or recapitalize the business.
Private Equity Misconceptions & The Macro Landscape
Steve McGarry: What are some of the common misconceptions people have about private equity specifically?
Sequoya Borgman: The biggest misconception is that we go in and cut costs by letting people go. We've bought 22 companies and have never done that—that's not our M.O.
I think that's a hangover from the 1980s, when leveraged buyouts were putting 90% leverage on businesses, leading to breakups, restructuring, and Barbarians at the Gate Wall Street stories. That's not what private equity does these days. The goal is to create value with great businesses and make them even more successful, which requires keeping and supporting the team.
A lot of times, you actually add costs. We improve employee benefits, upgrade services, and enhance software and systems so the business can scale to the next level. People talk about the private equity "J-curve," where you make heavy investments in the first year expecting returns over 5 to 10 years, which may decrease cash flow initially.
The main misconception is that employees fear losing their jobs when private equity invests, but that's really not the case. Nobody wants to buy a business and have it perform worse than before. While downturns or industry cycles can cause tough situations across all business types, cost-cutting through layoffs is not the intent of private equity investors.
Steve McGarry: Well said. As a bonus question before we wrap up: the current private credit market situation is a bit crazy, specifically regarding the timeline for selling assets after returns have or haven't been made. There are something like 30,000 businesses currently sitting in private equity portfolios, creating a bit of a traffic jam. What is your macro view on what will happen over the next couple of years with private credit, private equity portfolios, and retiring boomer entrepreneurs?
Sequoya Borgman: It is still a seller's market for great assets—if you have a great asset, you can sell it. The issue is that so much money flowed into private equity and private credit over the last decade that it drove up valuations to multiples that didn't make long-term sense unless you could sell for an even higher multiple down the road.
Now multiples have compressed, leaving many businesses purchased in 2020 through 2022 underwater relative to their purchase multiples. Instead of selling to realize a loss, investors are holding onto those businesses for another 3 to 5 years to see if multiples recover.
With private credit, too much capital was raised and needed to be deployed, which led to funding higher-risk deals. As long as the broader economy holds up, it will work itself through the system, though an economic downturn could compound issues.
For high-quality investments, traditional bank financing remains available at lower interest rates. We use very little private credit in our deals—occasionally some subordinated or mezzanine debt—because most of our transactions are bankable with regional or national banks at lower rates. Private credit became heavily involved in higher-risk transactions, particularly in software where debt balance sheets created downward spirals during valuation pullbacks. That's where current market friction is concentrated.
Advice & Closing Remarks
Steve McGarry: That brings us to the finale. Knowing what you know now, what would you tell Sequoya 10 years ago?
Sequoya Borgman: Going back 20 years, I would have told myself to start sooner! I wish I hadn't stayed in public accounting for 20 years.
It's been a lot of fun. The most valuable lesson learned over the last decade is to invest with good people and ensure your interests are aligned. It's all about people, relationships, and your network. If something doesn't feel right in your gut or feels a little shady, walk away from those individuals and those investments.
Steve McGarry: Well said. Where can people learn more about what you're doing?
Sequoya Borgman: They can reach out to me through LinkedIn, or business owners can connect with us at borgmancapital.com. We're always looking for good investments. For accredited investors interested in lower middle market transactions, we have a platform called Pass The Hat (PassTheHat.com) where they can view investment opportunities.
Steve McGarry: Very cool. Wherever you are listening on iTunes or Spotify, the links Sequoya mentioned will be in the show notes. Thank you so much for coming on and sharing all your wisdom!
Sequoya Borgman: Yeah, thanks for having me. Great conversation.
