Private equity

A private equity firm offers investment in return for a controlling stake, to help you in the next stage of your growth.

While giving up control of your business might sound scary, private equity could be a good option if you, as founder:

  • need funding and expertise to take your business to the next stage of its growth
  • feel you've taken the business as far as you can
  • want to retire

A private equity firm will take a large or controlling stake in your business. In return, the business receives cash and an expert steer to help it grow, while your previous shareholders may receive a cash settlement.

You (the seller)

The current shareholders of the company who want to sell.

Private equity investors (the buyers)

They keep an eye on the market and approach businesses that suit their investment strategy.

Buy-side advisers

Intermediaries, such as investment banks, corporate finance advisers and boutique advisers. They help the private equity investors complete due diligence on your company, shareholders and other key areas the investors have specified.

Sell-side advisers

Intermediaries who help you present your company for sale to investors in a professional manner.

Lawyers

You, and the private equity investors, will each hire lawyers to check the sale/purchase is properly and correctly documented.

Debt providers

Private equity often triggers a change of ownership. Debt providers will help the private equity investors to buy their stake in the business and any existing debt. This is called a leveraged buy-out.

Large investments

Your business might be able to tens of millions of pounds to finance its growth.

Professional help

Investors use their expertise to support the company’s growth strategy. Their motivation for doing this comes from the opportunity to increase the value of their shareholding.

Exit strategy

Private equity funds aim to implement a strategy from day one to make a business more attractive to buyers. Typically this can be over a five-year timeline.

Personal process

Usually, you, as business owner, will be dealing with a team of two to five investors, making the process more personal.

Few guarantees of growth

You're giving away a significant share in your business in return for finance. There's no guarantee that your business will grow and succeed as a result.

Quick exit

Private equity investors typically look to sell their shares within five years.

About your business

  • Business stage: Mature and growing; profitable
  • Annual turnover:  £10m–£100m
  • Sectors:  All
  • Regions:  All

 

About the finance

  • Purpose of finance: Change in shareholder ownership, management buy-outs, acquisition, product development, entry into new markets
  • Amount available:  £10m–£50m
  • Duration of finance:  3–5 years
  • Cost of finance:  Monitoring and director fees; loan note interest
  • Time it can take to get finance:  3 months–1 year

Ask an expert: Tim Hames, director general at the British Private Equity and Venture Capital Association (BVCA)

Private equity firms look for a place they can make a return. If I had to offer businesses three tips, they would be the following:

Tip 1: It’s more of a sin to ask for too little money than it is to ask for too much

If you end up going back and asking for more, it looks unprofessional. Pitch high in the first place and the firm can always scale you back.

Tip 2: Find a partner that brings you more than money

Look for sector knowledge or expertise that your board members don’t already have. Sector knowledge will bring contacts and networks, while experts will be able to pre-empt issues concerning personnel and expansion.

Tip 3: Save time by understanding the difference between institutions before you speak to them

Understand how your business matches up to the person you’re speaking to. Make sure you understand what they’re looking for.

Giving up part of the business

Private equity investors often demand a controlling stake.

Controlling interests

Investors will expect board seats and even their choice of chairperson.

Medium-term solution

Private equity is not a long-term source of funding. Firms will often sell their shares after the investment period (usually within five years) is over.

Wide-ranging change

You must be willing to make changes to your strategy, operations and management.

Intermediaries such as lawyers, investment banks or advisers might approach you. Sometimes, private equity firms go to the business directly. You can also approach firms yourself too.

Seek independent finance advice from your accountant or financial adviser, or speak with other intermediaries.

The process can take up to a year.

 

“You build relationships in private equity over three or four years. So, if you’re thinking of retiring and there’s no obvious succession plan, private equity can make your exit easier.”

Tim Hames Director general at the British Private Equity and Venture Capital Association (BVCA)

Other finance options

Click here to visit Venture Capital
Equity
Venture Capital invests in businesses with high growth potential, often after Angel investors have got the business started.

Venture Capital

Investors like

Early stage businesses, regardless of whether they have made a profit or revenue, with an annual turnover of less than £3m.

You're looking for

Significant growth and £1m+ of finance within six to 12 months with the option for multiple funding rounds.

Find out more about Venture Capital
Venture Capital
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
ABOUT Venture Capital
Purpose of financessss Acquisition; research and development
Amount of finance £1m+, depending on funding round
Duration of finance 5-10 years
Cost of finance None
Time of finance 6-12 months
About your business
Business stage Early stage; no revenue or profit needed
Annual turnover Depends on the business, but is often below £3m
Sectors All
Regions All
Click here to visit Equity Crowdfunding
Equity
Using an online platform, investors buy shares in a company to help it grow.

Equity Crowdfunding

Investors like

Businesses of any size who sell their product or service in a compelling way on Crowdfunding platforms.

You're looking for

Either large or small sums of finance to create new products, for acquisition, to develop products, fulfil projects or enter into new markets.

Find out more about Equity Crowdfunding
Equity Crowdfunding
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
ABOUT Equity Crowdfunding
Purpose of financessss Creating new products, acquisition finance, product development, project fulfilment, entry into new markets
Amount of finance Up to £4.3m without a prospectus, higher with a prospectus
Duration of finance Dependent on the business being funded
Cost of finance This is platform specific. Platforms often charge a success fee (usually a percentage of the amount raised) with a listing fee. Others will charge a percentage of profit
Time of finance Once your documents are in order, it can take as little as a month
About your business
Business stage Pre-revenue through to more established businesses
Annual turnover Any
Sectors Any
Regions Any
Click here to visit IPO
Equity
An IPO (or Initial Public Offering) is when a business sells shares via the public markets, such as the Main Market or AIM operated by the London Stock Exchange.

IPO

Investors like

Established and growing businesses, with predictable revenues and a proven track record. Smaller companies, including those who are pre-revenue, can also be attractive depending on the proposition.

You're looking for

Unlimited equity capital. Up to £200m on AIM or even larger sums on the Main Market and exposure to a wider pool of investors.

Find out more about IPO
IPO
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
ABOUT IPO
Purpose of financessss Acquisition, product development, new markets
Amount of finance Up to £50m on AIM; unlimited on the Main Market
Duration of finance 10 years +
Cost of finance You will need to appoint an accountant, a law firm and usually a PR firm. Assume this will cost 8% of the amount you hope to raise
Time of finance IPO processes takes 10-12 weeks; but planning and negotiations can take 12-18 months
About your business
Business stage Established and growing
Annual turnover Over £5m; this does not apply to healthcare businesses
Sectors All sectors; healthcare and tech may be able to list earlier in their lifecycle than other sectors
Regions All

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