The Private Equity Playbook

Adam Coffey, a self-described "blue-collar CEO" with almost 20 years of experience running private equity-backed companies, presents a practical guide for business owners and executives entering the private equity industry for the first time. Drawing on his career leading three national service companies backed by private equity, Coffey frames private equity as a fundamentally different "game" from traditional corporate or entrepreneurial business, one requiring new knowledge of its rules, players, and strategies. He structures his advice around two archetypal readers: "Josh," a CEO of a middle-market company considering selling his business to private equity, and "Rose," a Fortune 500 mid-level executive being recruited to lead a private equity-backed company. Coffey traces his own path from leaving home at 17, enlisting in the U.S. Army, working as an engineer, spending a decade at General Electric, and then being recruited to serve as president of three successive companies. He emphasizes the industry's rapid growth, from 312 firms in 1990 to over 5,300 firms managing $2.83 trillion in assets by the end of 2017, and stresses that the book is a primer rather than financial or legal advice.

Coffey begins by defining private equity funds, comparing them to mutual funds: both pool investor capital under a fund manager's control, but private equity funds are private, illiquid, and typically operate under a 10-year charter. Investors, called limited partners, are primarily pension funds, wealthy families, and institutions that pledge capital for the fund's life but hold no decision-making authority. The private equity firm acts as the general partner with full control over investments. The typical fund life cycle involves buying platform companies, or anchor holdings that serve as a base for growth, in the early years, growing them in the middle years, and selling them in the later years, with a typical hold period of three to seven years per company.

The author surveys common fund types. Buyout funds, the book's primary focus, purchase controlling stakes in established businesses. Venture capital funds make smaller, minority-stake investments in early-stage businesses with higher risk but potentially larger returns. Additional structures include fund of funds, which invest across multiple private equity funds for diversification; debt funds, which lend money to portfolio companies rather than buying equity stakes; and coinvesting arrangements, where firms or limited partners invest directly alongside the main fund. Private equity firms earn revenue through management fees, typically about 2 percent of invested capital, and carried interest, typically 20 percent of profits returned to limited partners. Carried interest is charged only after a preferred return, a minimum profit threshold owed to investors, has been met.

Coffey explains the three key metrics by which funds are ranked against peers of the same vintage year, or the year a fund makes its first investment. Internal rate of return (IRR), the most important metric, is a net return expressed as a percentage that accounts for all cash flows; a good IRR is in the mid-teens, and a great one exceeds 20 percent. Multiple on invested capital (MOIC) divides the return by invested capital but does not account for time. Distributions to paid in capital (DPI) measures the speed at which a fund returns money to investors.

The author describes the hierarchical roles within private equity firms. Partners or managing directors control investment decisions and interface directly with portfolio company CEOs. Principals or vice presidents provide day-to-day oversight. Analysts or associates build financial models and conduct research. Investment bankers serve as independent intermediaries who help prepare companies for sale, run sale processes, and facilitate due diligence.

Coffey then addresses how to evaluate private equity firms. He describes the typical sale process, in which an investment banker targets roughly 30 potential buyers with a confidential information memorandum (CIM) and progressively narrows the field through indications of interest, management presentations, and letters of intent. He argues that price should not be the sole consideration, introducing the "hands-on, hands-off meter" to describe the spectrum of firm involvement in daily operations. Additional factors include the quality of the relationship with the lead partner, governance structures, and the firm's culture.

The author details the equity structures governing management's relationship with private equity firms. In leveraged buyouts, firms maximize debt financing and minimize equity from the fund, preserving cash for other investments. The ABC waterfall, the most common equity structure, involves three classes of stock. Class A is preferred stock purchased by the firm and optionally by management, sometimes carrying a compounding preferred yield, an accumulating return owed on the preferred stock before lower classes receive proceeds, of 7 to 10 percent. Class B is an incentive pool distributed among management as profit interest units, equity awards that entitle holders to share in sale profits with capital-gains tax treatment. Class C triggers when the fund reaches a specific MOIC threshold, giving management 25 percent of remaining proceeds. The waterfall only flows if the sale price is high enough to fund each successive class. Coffey also describes earnouts, where sellers receive additional consideration if the company meets post-sale growth targets, and notes that shareholder agreements are rarely negotiable while employment contracts offer more room for discussion.

Coffey presents his personal strategy for generating wealth through repeated rollover investments. Rather than treating a sale as a one-time event, he advocates rolling forward 34 percent of proceeds, typically tax-deferred, while taking 66 percent in cash. If the company achieves a 3x MOIC, the rolled portion yields $1.02 for every original dollar at the next sale. He shares that his personal record is five seven-figure paydays from the same company over 13 years and emphasizes that this strategy is available to Rose as well.

Turning to post-acquisition operations, Coffey describes board formation, governance, and the urgency to execute. The board typically consists of five to seven members, including representatives from the private equity firm, independent advisors, and possibly the CEO. He stresses that IRR's time sensitivity means delays are costly. He compares the transition to moving from high school to professional sports and argues for swift personnel decisions, noting that 10 of 12 direct reports at his current company were replaced or newly created within two years, resulting in revenue increasing over 50 percent and EBITDA (earnings before interest, taxes, depreciation, and amortization) growing over 200 percent.

Coffey explains EBITDA as private equity's central valuation metric. Because private equity-backed companies carry significant debt whose interest payments largely eliminate the tax burden, management must shift from minimizing taxable income to maximizing EBITDA. The key distinction is between operating expenses, which reduce EBITDA, and capital expenses, which do not. He advises favoring capital expenses where reasonable, since every dollar of EBITDA increase is multiplied by the valuation multiple at sale.

The author presents three growth strategies for increasing shareholder value. Organic growth involves increasing revenue through pricing adjustments, sales restructuring, product tiering, rebranding, and exploring "blue ocean" markets, a concept from W. Chan Kim and Renée Mauborgne's 2005 book referring to uncontested market space. Margin expansion focuses on reducing costs through process efficiency; at the commercial laundry company Coffey ran, combining satellite-tracked routing with a simplified keying system increased employee productivity by 42 percent. The third and most impactful strategy, "buy and build," uses mergers and acquisitions to scale rapidly. Add-on companies, smaller acquisitions integrated into the original platform, can be purchased at lower EBITDA multiples and valued at the parent company's higher multiple, a phenomenon called multiple expansion that creates substantial shareholder value. Coffey also discusses the strategic use of consultants, whose one-time fees qualify as add backs, one-time expenses excluded from adjusted EBITDA for valuation purposes, unlike permanent salaries.

In his conclusion, Coffey reiterates the book's core messages. For Josh, partnering with private equity and rolling forward equity can generate wealth across multiple paydays over decades. For Rose, leaving the Fortune 500 for middle-market private equity offers potential seven- or eight-figure paydays every three to seven years. He acknowledges the intensity of the environment but frames the book as a halftime speech, encouraging readers to pursue further learning and take action.