If you’re the owner of a UK SME looking to exit, you’re likely pondering whether to sell your business to private equity, an active buyer pool with a seemingly insatiable appetite to deploy capital.

Globally, the private equity industry is reported to have an extraordinary $1.6 trillion in ‘dry powder’ to spend*. In the UK alone, private equity was involved in 828 mid-market transactions (deal size £10m - £300m) in 2024 with a total value of £44bn**. If you are thinking of exiting your business then it would obviously be sensible to think about accessing some of this capital for yourself. But before embarking on this journey it’s worth understating a bit more about the nature of private equity deals.

As has been the case for many years, in 2024 over 50% of private equity transactions in the UK mid-market were ‘bolt-ons’ whereby a company already invested in by private equity is the acquiror. Once invested in a ‘platform’ asset, growth by acquisition is an attractive route for deploying more capital, making these private equity-owned businesses keen buyers.

Exiting your business as a bolt-on to private equity is very much like selling your business to a trade buyer, although the private equity firm will no doubt be involved in the negotiations and you will commonly be asked (or required) to ‘roll’ an element of your proceeds into the acquiring company’s equity. This reinvestment is often framed as a statement of your confidence in the combination (or the cynical might suggest it lowers initial cash outlay for the buyer).

You will also be asked to roll this equity with little or no due diligence on the business that you are about to invest into, which is ironic given the due diligence that you will have just suffered at the acquiror’s hands. Furthermore, you will have to accept your role as a passenger with limited influence (if any) at board level. Of course, the wise owner will secure enough cash in the initial deal to see any return on a roll over investment as a “nice to have”.

Of the total private equity mid-market deal volume, some 20%-30% each year are ‘direct’ investments. Of those, about half again are buy-outs affording the opportunity to facilitate an exit (between 10-15% of annual deal volume, or in the range of 80 to 125 deals a year). This is a reasonably small number in the context of the overall market and private equity houses have quite specific needs when looking at a direct investment. There needs to be a strong growth story, compelling market dynamics and a management team that private equity is willing to back. The quality of the management team is actually essential as private equity firms typically rely on others to run the business for them. The need for strong management is even more acute if you are trying to secure an exit for yourself.

In direct private equity deals you should also expect greater levels of due diligence both in terms of depth and breadth, while vendor due diligence is also commonly expected. It’s likely that due diligence will be extended to include commercial and management alongside the normal financial and legal.

The technicalities of the transaction will also be much greater including not only the sale arrangements, but also the terms surrounding the newly created company that is to hold the private equity investment, debt facilities, management equity and any roll over. This complexity will be reflected in the professional fees for both seller and buyer which will be substantially higher.

In conclusion, private equity makes for a very viable and interesting route for the exiting owner manager although it is vital to understand the differences to a traditional trade deal and whether your business is suitable before engaging…

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Jim Shaw is Founder & CEO of Shaw & Co.

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If you'd like to discuss how Shaw & Co can help you sell, buy or fund the growth of a business, please book a meeting here

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Sources

* EY: ‘Private Equity Pulse: key takeaways from Q1 2025’.

** KPMG: ‘UK Private Equity deal activity rebounds in 2024’.