Sell-side readiness: the vendor and cost story buyers will test

Twelve to 18 months before exit, start proving the cost story buyers will pressure-test in diligence. What to fix while there is still time to show it in the numbers.

Exit markets are crowded and buyers are careful. PitchBook counted 33,575 PE-owned companies awaiting exit at the end of June 2026, and Bain estimates buyout holding periods at exit have stretched to about seven years, according to a Penn Mutual Asset Management summary published this month. When buyers have that much choice, diligence becomes a search for reasons to lower the price.

The cost base is where they look first. Every saving in the management case, every add-back in the quality of earnings, every claim that the business runs lean gets tested. Twelve to 18 months before a process is when you can still prove it instead of asserting it.

What buyers will test

We have sat on the buy side of these reviews. The same questions come up every time.

• Are the savings in the run-rate or in the plan? A cost reduction visible in four quarters of actuals is a fact. One that starts next quarter is a projection, and buyers discount projections. S&P Global Ratings, which studies EBITDA addbacks in debt-financed buyouts every year, reported in 2025 that addback levels remain high despite some easing. Buyers and lenders read that research too.
• Which contracts renew in the next owner's first year? A major software or agency contract renewing six months after close, with a large escalator, is a cost the buyer will price in.
• Is vendor spend concentrated? One supplier running a critical system on terms that are hard to exit is a risk flag.
• Are there change-of-control clauses? Some vendor contracts allow renegotiation or termination when ownership changes.
• Does the cost base scale? Buyers will model growth. If software, cloud and services costs rise in step with revenue, margins will not expand the way the plan says.
• Is there a contract inventory at all? A data room without a clean contract register tells the buyer nobody owns spend.

The 18-month timeline

18 to 12 months out: build the evidence.

• Build a full contract register: supplier, value, term, renewal, notice, change-of-control terms, owner.
• Benchmark the largest vendor categories: software, cloud, agencies and media, telecom, professional services.
• Start renegotiating contracts that renew in the next 24 months. Savings closed now will show in trailing actuals.

12 to 6 months out: put it in the numbers.

• Settle renewals that would otherwise land in the buyer's first year, on terms you can defend.
• Remove duplicate tools and unused seats so the run-rate reflects the real stack.
• Document every one-off cost and saving with an invoice trail. Add-backs without paper get rejected.

6 to 0 months out: tell the story.

• Write a vendor and cost section for the information memorandum and data room: what changed, when, and what it saved.
• Prepare management for cost questions. Buyers notice when the CFO and COO give different answers.
• Review the cost base the way a buyer would. Find the weak points before they do.

What not to do

Don't cut what supports growth just to flatter EBITDA. Buyers spot a marketing budget slashed in the final year, and they will ask what happens to the pipeline. Don't sign three-year renewals to show a lower annual price if the commitment exceeds what the business will use. A large unused commitment is a liability in diligence, not a saving.

And don't leave it to the last six months. A saving that shows in one quarter of actuals invites the question of whether it will last. One that shows in four answers it.

Sources: Penn Mutual Asset Management, Private equity's unsold backlog keeps growing, S&P Global Ratings, Addback levels remain high despite some easing.