Private equity (PE) firms are becoming more active in mergers and acquisitions within the construction industry. These firms are drawn to the sector by strong growth opportunities, particularly in residential housing and infrastructure, as well as the potential to achieve operational scale and efficiency through consolidation. According to PwC, despite ongoing macroeconomic challenges — such as rising material costs and labor expenses — moderate deal-making activity was observed during the first half of 2025.1
When a company is considering selling to a PE firm, one often overlooked but crucial element is the strength and stability of its surety bond program, which can shape the outcome of the transaction. Surety bonds, common in construction and other regulated industries, guarantee a company's performance and financial obligations. Any change in ownership can trigger concerns from surety providers.
By their nature, PE transactions introduce uncertainty that can lead to reduced bonding capacity or stricter terms. To mitigate these risks, companies should adopt a proactive approach and engage early with surety providers, explaining the deal's intent and structure and evaluating the PE firm's financial stability and strategic direction. Similarly, ensuring that post-acquisition operations meet surety requirements can ease the transition of the firm into PE ownership.
This guide provides a comprehensive overview of the key concerns that surety providers focus on when assessing a transfer in ownership and effective strategies for addressing these challenges.
Key surety concerns in private equity transactions
When PE firms acquire companies, sureties often flag changes that could affect the financial guarantees they depend on. Three areas typically draw the most scrutiny:
Shifts in indemnity structures
Surety companies require a personal indemnity agreement from business owners to ensure the owners will cover any losses the surety incurs. However, PE firms are often structured to limit personal liability, as their structures shield individual investors. This key difference can make it challenging to secure the same level of indemnity, potentially weakening the surety provider's confidence in the bond program.
Increased debt leverage
PE acquisitions often involve substantial debt financing. While this financing supports the acquisition, it can strain the company's balance sheet and reduce bonding capacity. Sureties prefer moderate debt levels, steady cash flow and a clear path to meet both debt and bond obligations.
Additionally, PE firms' focus on short-term returns can raise concerns about decisions that may compromise the company's future stability.
Management turnover and continuity
Leadership changes are a common aspect of PE deals but can also disrupt operational stability. Sureties will carefully evaluate the new management team's industry experience and ability to uphold the firm's financial health.
Surety-proof strategies for successful acquisitions
While leadership changes can signal uncertainty, they don't have to disrupt surety relationships. By focusing on strategic priorities, companies can ensure their surety bond programs stay strong and uninterrupted during leadership changes.
Sureties assess risk based not only on financial metrics but also on the leadership's track record and decision-making style. A shift in strategy can influence the company's risk profile. Consequently, bonding terms or capacity may be reevaluated. To maintain confidence, new leaders need to communicate their plans and demonstrate that the company's core strengths and commitments remain unchanged.
Transparency and due diligence are essential. Companies need to thoroughly review their current surety program, including bond types, coverage limits, indemnity agreements and relationships with surety providers. Early engagement with sureties ensures alignment with the company's goals. At the same time, it's important to be open with the PE firm about the company's bonding needs and the strategic value of preserving strong surety relationships.
Managing PE acquisition requires clear communication, early planning and a steady hand. Companies can protect their bond programs and lay the foundation for long-term stability under new ownership by working closely with the surety provider and their Gallagher surety executive.
Indemnity is often a sticking point. PE firms typically avoid personal guarantees, which sureties expect. Alternatives such as limited indemnity from the fund or parent company, capital retention agreements or collateral can bridge the gap. Negotiating these terms with both the surety and the PE firm is crucial to finding a solution that works for everyone.
Financial stability remains central. It's essential to understand how the transaction will affect the company's capitalization, debt levels and cash flow. Equally crucial is demonstrating that sufficient working capital is in place to support ongoing bond obligations and potential claims.
Understanding the PE firm's strategic goals — whether they involve expansion, entering new markets or shifting project types — can help predict how these changes might impact bonding capacity. Open discussions about growth plans and risk mitigation strategies will reassure sureties of the company's reliability.
Additionally, companies should evaluate the transferability of existing bonds and the process for obtaining new ones after an acquisition. Any changes in legal or regulatory requirements, especially across different jurisdictions, must be addressed to ensure compliance and ongoing operations.
Preparing for a PE sale: 5 tips to strengthen your surety bond strategy
- Communicate early and openly: Engage your surety provider from the start. Transparency builds trust and gives them time to properly assess the deal's risks.
- Tackle indemnity challenges proactively: PE firms often avoid traditional personal indemnity, but sureties expect it. Consider alternatives like limited-dollar indemnity, capital retention agreements or posting collateral to keep your bond program intact.
- Demonstrate financial strength: Surety providers need to have confidence in your post-acquisition stability. Highlight a strong financial track record, steady cash flow and healthy working capital to reassure them that the company can meet its obligations, even under new ownership.
- Present a clear, forward-looking business plan: Lay out your strategy under PE ownership, including strategies for growth, debt management and risk mitigation. A well-articulated plan signals commitment to long-term success, not just a focus on short-term gains.
- Emphasize management continuity: Retaining key leadership reassures sureties. Experienced management teams help maintain operational continuity and can significantly boost trust and confidence in the deal.
