Private equity firms (“PE”) have evolved from the caricature of the 1980s “corporate raiders” to become dynamic, growth-oriented investors. With a staggering £190 billion in capital that is seeking opportunities, today’s PE firms are often just as competitive if not more so, than traditional trade buyers. For business owners considering a sale, engaging with PE can be a compelling option – but is it right for you and your business?
The Advantages of Selling to Private Equity
- Capital & competition: PE bidders come to the table with significant available funds, enabling them to match or exceed trade buyers in competitive auction processes. Sellers may also retain shares, allowing them to benefit from future growth thereby aligning incentives with a potential upside further down the line.
- Realising value whilst reducing risk: A PE deal allows vendors to realise all or part of their business’s value now, the latter allowing them to de-risk their personal exposure whilst retaining involvement and equity for the next stage of growth.
- A strategic second bite: The hybrid nature of a PE deal allows sellers to hedge their position by realising value today whilst maintaining a stake in the future performance of the business. This potential for a “second bite of the cherry” is often a key attraction.
- Talent & strategy uplift: Equity-backed firms typically benefit from access to high-calibre talent and board-level strategic input. This can accelerate performance and long-term value creation.
- Driving scale & sophistication: PE firms bring financial discipline, international networks and operational expertise. The blend of robust oversight with bold ambition can drive transformation and scale.
- Capital for growth – not just cost-cutting: Contrary to stereotypes, modern PE firms prioritise growth. Their capital and expertise support expansion, acquisitions and innovation often accelerating a business’s journey in ways that founders alone might find risky.
- Continued involvement & vision delivery: Founders and management can remain involved, working with the PE firm to shape the business’s future.
- Enhanced exit expertise: PE firms are seasoned sellers. Their experience in preparing businesses for future exits can be invaluable in establishing a clear path to long-term value realisation for all stakeholders.
Preparing for sale: planning is paramount
Private Equity buyers tend to focus heavily on forecasts, financial metrics and commercial due diligence. Presenting a clear growth narrative backed by solid numbers and competitive insight is of key importance. Understanding which customers are profitable and which consume disproportionate resources can significantly strengthen your sales pitch. PE firms will also assess how dependent the business is on its founders – a credible management team that can deliver growth increases investor confidence.
Deal structures: balancing risk & reward
Most Private Equity deals involve the acquisition of 50 to100% of the shares, with a typical 70–80% cash payment at completion. The remainder often includes earn-outs, deferred consideration, and/or rolled or retained equity and protecting earn-outs by ensuring seller involvement during the earn-out period is essential.
Sellers should scrutinise the Private Equity firm’s history, especially in terms of successful exits. Speaking to other founders who have worked with the same firm can offer useful and revealing insights. It is also wise to understand the potential impact of leveraged debt, which can reduce the value of retained shares (the so-called “equity illusion”). Although PE firms use similar valuation methods to trade buyers, there is more emphasis on cash flow and seasonality due to the debt leverage. An experienced advisor can demystify the process and ensure fair value.
Disadvantages of a Private Equity sale
While there are clear financial advantages to selling your company to a PE firm, there are also drawbacks. PE firms often prioritise commercial performance metrics over softer cultural values, particularly those relating to people. This shift can feel abrupt, especially for control-oriented sellers, as the new owners may operate in a markedly unique way, often with increased scrutiny on cost control and cash management. While some view this operational rigour as a positive step, others may find it restrictive or misaligned with their previous working style. By contrast, trade buyers who can benefit from synergies and economies of scale may be able to offer more cash on completion thereby providing greater certainty, which is attractive to sellers seeking a clean break.
When to consider Private Equity
There is no single “right” path to exit. Your goals – whether that is retirement, de-risking, or fueling growth should guide your decision. In the UK’s mid-market (businesses with £500k to £5m EBITDA), Private Equity firms are increasingly focused on the scale-up potential and job creation. For the right business, Private Equity can be a springboard for transformational growth. Even if your preferred option is a trade sale, engaging Private Equity firms in a competitive process can raise the stakes, drive higher offers and provide valuable benchmarks. When matched with the right business, Private Equity can offer the capital, expertise and ambition to deliver exponential growth often unlocking value that founders could never achieve alone.
Finally, let’s not forget the £190 billion of funds looking for a home…
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This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for any specific tax, legal or accounting advice. Regulated advice bespoke to your circumstances is essential.
