How Does Private Equity Actually Buy a Business in the UK?

Private equity firms buy businesses by combining equity from their fund with debt borrowed against the target company's cash flows — a structure called a leveraged buyout. The process typically runs six to twelve months from first conversation to completion, involves multiple layers of due diligence, and almost always requires the existing management team to roll over a meaningful chunk of equity into the new structure. If you've been approached by a PE firm and aren't sure what you're walking into, this guide explains the mechanics plainly.

Table of Contents

How do PE firms find businesses to buy?

PE firms source deals in three main ways: proprietary outreach, adviser-run processes, and intermediary relationships.

Proprietary outreach is when a PE firm contacts you directly — through LinkedIn, via a letter, or through a mutual contact — without any formal process running. This feels flattering, and it can be genuine, but it also means you have no competitive tension. There is no other bidder in the room to sharpen their offer.

Adviser-run processes (sometimes called a structured process or auction) are run by corporate finance advisers on your behalf. A teaser goes to a curated list of PE funds and trade buyers, a management presentation follows, and indicative offers are submitted in rounds. This creates competition and generally achieves better pricing.

Intermediary relationships are ongoing connections between PE firms and accountants, lawyers, and sector specialists who flag deals before they go to market. Many mid-market PE deals in the UK are done this way — quietly, before an owner has formally decided to sell.

If a PE firm has approached you cold, the most important thing to understand is that you are not obliged to proceed on their terms or their timeline. Taking independent advice before you respond costs nothing and changes the dynamic significantly.

What is an investment thesis and why does it matter to you?

Before a PE firm makes an offer, they build an investment thesis — a clear internal argument for why your business will be worth more in five years than it is today. This shapes every conversation you will have with them.

Common UK mid-market PE theses include:

  • Buy and build: acquire your business as a platform, then bolt on smaller competitors
  • Operational improvement: professionalise management, implement systems, reduce costs
  • Geographic expansion: take a strong regional business national, or expand into Europe
  • Sector consolidation: roll up fragmented markets (common in healthcare services, facilities management, and construction services)

Understanding their thesis matters for two reasons. First, it tells you whether they see your business as a platform or a bolt-on — which affects your role post-deal. Second, it helps you assess whether their growth plan is realistic or wishful. You are going to be living inside that plan.

How is a PE deal actually structured?

Most UK PE acquisitions are structured as leveraged buyouts (LBOs). The purchase price is funded by a combination of:

Funding LayerTypical % of Deal ValueSourceCost
Senior debt40–55%UK clearing banks or debt fundsLowest — secured against assets/cash flows
Mezzanine debt0–15%Specialist lendersHigher — subordinated, often with equity kickers
PE equity30–50%The PE fundHighest risk, targets highest return
Management rollover5–20%You and your senior teamAligns incentives post-deal

The debt is loaded onto the acquired business, not the PE firm. This is why PE buyers focus so heavily on EBITDA and cash conversion — the business needs to service that debt from its own trading cash flows. It also means a PE buyer will scrutinise your working capital, capex requirements, and customer concentration more forensically than a trade buyer typically would.

EBITDA multiples in UK mid-market PE deals currently range from roughly 5x–9x depending on sector, size, and growth profile. Businesses in healthcare services, professional services, and high-margin business services tend to sit at the upper end. Cyclical businesses in construction or logistics without recurring revenue tend to sit lower.

This article contains general information only and does not constitute financial or tax advice. Every business sale is different. Speak to a qualified UK tax adviser about your specific situation before making any decisions.

Why does PE always want management to reinvest?

PE firms almost always require the CEO and senior team to roll over equity — typically 10–20% of their sale proceeds — into the new holding structure. This is non-negotiable for most funds.

The logic is straightforward. PE firms are not operators. They will appoint a board, challenge the strategy, and hold you to KPIs — but they need you running the business day-to-day, at least for the first two to three years. Rollover equity creates alignment: if the business performs, your remaining equity grows in value alongside theirs. If it doesn't, you both lose.

What this means practically is that you will not receive 100% of your proceeds on day one. A portion is reinvested into the new structure, often with its own set of terms around vesting, good leaver and bad leaver provisions, and drag-along rights. These terms are negotiable, and you should ensure you have specialist legal advice before agreeing to them.

What does the acquisition process look like step by step?

  1. Initial approach or mandate — Either a PE firm contacts you, or you appoint an adviser to run a process. Heads of Terms (HoTs) may be signed at the end of this phase.
  2. Non-disclosure agreement — Standard. Signed before you share any financial information.
  3. Management presentation — You present to the PE fund's investment team. Expect detailed questions on customer concentration, margins, and key-person risk.
  4. Indicative offer — The PE firm submits a non-binding offer, usually as an EBITDA multiple range. This is not a guarantee.
  5. Exclusivity — The preferred bidder is granted a period of exclusive negotiation, typically 4–8 weeks.
  6. Due diligence — Financial, legal, commercial, and often operational DD runs simultaneously. Expect requests from multiple workstreams. This is the most demanding phase for you and your finance team.
  7. Sale and Purchase Agreement (SPA) negotiation — Lawyers on both sides negotiate the legal documentation, including warranties, indemnities, and any locked box or completion accounts mechanism.
  8. Completion — Funds transfer. Ownership changes. The clock starts on the hold period.

From first serious conversation to completion, expect six to nine months in a well-run process. Twelve months is not unusual if the deal is complex or financing takes time to arrange.

What happens after completion — the 100-day plan?

The 100-day plan is the PE firm's immediate post-acquisition playbook. It typically covers governance (new board, reporting cadence, KPIs), quick operational wins, any early integration activity, and the first steps toward the investment thesis.

For you as a seller who has rolled over equity, this period can be the most jarring. You were the owner. Now you have a board, monthly reporting requirements, and a fund with a five-year clock running. The best PE-backed management teams describe it as a positive discipline — the rigour forces clarity. Others find it a significant cultural adjustment.

Being clear about your own expectations before completion — your role, your autonomy, your relationship with the new board — is something you should negotiate as part of the deal, not assume afterwards.

How does PE eventually exit?

PE funds typically hold investments for three to seven years before seeking an exit. The most common exit routes in UK mid-market PE are:

  • Secondary buyout (SBO): the business is sold to another PE fund. Very common in the UK — many mid-market businesses have been through two or three successive PE owners.
  • Trade sale: sale to a strategic acquirer, often a larger competitor or international buyer entering the UK market.
  • IPO: listing on AIM or the main market. Less common for businesses below £200m enterprise value, and rare in current market conditions.

If you have rolled over equity, your second exit — when the PE firm sells — is often where the most significant value is created, assuming the business has grown into the investment thesis. This is the "second bite of the cherry" that PE firms frequently reference during their pitch.

If you're weighing up whether PE is the right exit route for your business, Private Equity as an Exit Route for UK Business Owners covers the strategic trade-offs in more depth. It's also worth understanding What Buyers Look for When Valuing Your Business before you enter any process — knowing how a buyer thinks about your business changes how you present it.

FAQ

How much of my business will PE actually own after the deal? Typically the PE fund will own 70–85% of the new holding company, with the remainder split between management rollover and sometimes an option pool for future hires. Your exact percentage depends on how much equity you roll over and the agreed valuation of your reinvestment.

Can I take all my chips off the table and not roll over equity? Some PE funds will allow a full exit, particularly if there is a strong existing management team below you. In practice, most UK mid-market PE firms expect the CEO and at least some of the senior team to retain skin in the game. A clean exit with no rollover is more likely in a trade sale than a PE deal.

What is a locked box and why does it matter? A locked box is a mechanism that fixes the economic transfer of the business at an agreed historic balance sheet date rather than at completion. It gives you certainty over your final proceeds and removes the risk of post-completion price adjustments. The alternative — completion accounts — can lead to protracted disputes and unexpected reductions in your proceeds. Which mechanism you use is a key negotiating point in the SPA.

Will TUPE apply when PE buys my business? Usually no — most PE acquisitions are structured as share purchases, meaning the company itself is sold rather than its assets. TUPE (Transfer of Undertakings (Protection of Employment) Regulations) typically applies to asset purchases or business transfers, not share sales. Employees' contracts remain with the company unchanged. Your solicitor will confirm the position for your specific deal structure.

How do I know if a PE firm's valuation offer is fair? Compare the implied EBITDA multiple against comparable UK transactions in your sector. Your corporate finance adviser should be able to provide recent deal data. As a general benchmark, UK mid-market deals in resilient, high-margin sectors are currently transacting at 6x–9x EBITDA. If a PE firm's opening offer is materially below this range, running a competitive process is likely to improve the outcome.

What happens to my business if the PE firm's debt strategy goes wrong? If the business underperforms and cannot service its debt, there is genuine risk — in extreme cases, lenders can appoint administrators. This is rare for fundamentally sound businesses, but the leverage does create exposure that you would not have as a sole owner. It is one of the reasons that understanding the debt structure, the covenants attached to it, and the fund's track record with comparable businesses matters before you sign anything.

Ready to understand what your business might be worth to a PE buyer or trade acquirer? Use the free valuation calculator on the Succession Group website to get an indicative range based on your sector, revenue, and EBITDA — no registration required.