Lee McCabe on Why the Old Private Equity Playbook Is Dead and the New Model Emerging

Today’s episode of Built to Sell Radio is part of our Inside the Mind of an Acquirer series. John Warrillow interviews Lee McCabe, a former Meta and Alibaba executive turned private equity investor—now an advisor helping PE firms modernize how they create value. 

McCabe argues the old model of buying cheap, piling on debt, and hoping for multiple expansion is over. Interest rates are up, LPs are demanding more, and the firms that win will need to act more like operators than bankers. If you’re planning to sell, and private equity is your natural buyer, you’ll want to hear this. 

You discover how to: 

• Spot why “buy at 8x, sell at 12x” no longer works. 

• Understand why PE firms are shifting from deploying capital to deploying capabilities. 

• See how sector specialists like Vista and Toma Bravo add value from day one. 

• Learn why building a tech stack is no longer optional—it’s table stakes. 

• Evaluate when to take the higher offer from PE (and a partner for five years) versus a lower, cleaner deal. 

• Ask the diligence questions that reveal whether a PE buyer will be a real partner—or a quarterly spreadsheet reviewer. 

McCabe has sat on both sides of the table—inside PE and now advising it. His blunt view: what worked for the last 20 years won’t work for the next 20. 

Show Notes & Links

Claymore Partners

Connect with Lee on LinkedIn

Definitions

Due-Diligence: This is a comprehensive appraisal of a business or investment undertaken before a merger, acquisition, or investment. It seeks to validate the information provided and uncover any potential risks or liabilities.

Earn-out: This is a financing arrangement for the purchase of a business, where the seller must meet certain performance goals before receiving the full purchase price. It reduces the buyer’s risk and aligns the interests of both parties post-acquisition.

Roll Over Investor: A rollover investor, in the context of selling a business, refers to an individual or entity that rolls some of their proceeds from the sale with the buyer. This strategy allows the seller to defer capital gains taxes and potentially leverage their expertise or resources in a new venture.

Debt Coverage Ratio: The debt coverage ratio is like a financial health check for a small business applying for a loan from a bank. It shows whether the business earns enough money to comfortably cover its debt payments.

In simpler terms, it’s a way for the bank to see if the business can afford to pay back the loan. If the ratio is high, it means the business is making enough profit to easily handle its debts. But if it’s low, it could indicate that the business might struggle to make loan payments, which could make the bank hesitant to lend them money.

Let’s say there’s a small bakery called “Sweet Delights” that wants to expand its operations by taking out a loan from a bank to buy new equipment. The bank wants to make sure Sweet Delights can afford to repay the loan, so they calculate the debt coverage ratio.

Sweet Delights’ annual net income (profit) is $50,000, and they have annual loan payments of $20,000 for existing debts.

The debt coverage ratio formula is:

Debt Coverage Ratio = Net Operating Income / Total Debt Service

In this case: Net Operating Income = $50,000 (annual profit) Total Debt Service = $20,000 (annual loan payments)

So, the debt coverage ratio would be:

Debt Coverage Ratio = $50,000 / $20,000 = 2.5

This means that for every dollar of debt Sweet Delights has, they’re making $2.50 in profit. In simple terms, the higher the ratio, the better, because it shows that Sweet Delights is making enough money to comfortably cover its debt payments. This would likely make the bank more confident in lending them the money for the new equipment.

Arbitrage: Arbitrage refers to the practice of exploiting price differences or inefficiencies in the market to generate profits. In the context of selling a business, arbitrage may involve identifying undervalued businesses or assets, acquiring them at a lower price, and then selling them at a higher price to realize a profit. This could involve various strategies such as purchasing distressed businesses, improving their operations or market positioning, and subsequently selling them at a higher valuation.

About Our Guest

Lee McCabe

Lee McCabe is a seasoned digital executive with global experience driving growth, innovation, and transformation across leading technology and commerce companies. Currently an Operating Partner at AEA Investors, he has held senior leadership roles at Alibaba Group, Meta (Facebook), and Expedia, where he specialized in scaling businesses, forging strategic partnerships, and building high-performing teams. With an MBA from Warwick Business School and a strong background in media and marketing, Lee brings a unique blend of strategic vision and hands-on expertise to help companies thrive in rapidly evolving markets.