Selling to private equity in 2026: what UK founders get wrong

Bain’s Global Private Equity Report 2026 shows a market that has recovered unevenly. Buyout investment climbed to $904 billion in 2025, a 44% increase over 2024, yet the number of deals fell 6% to 3,018 transactions. The growth came from the very top of the market; the same report notes that deal activity was driven by large transactions. A founder selling a business in the lower mid-market is therefore not riding a general tide.

Exits tell a similar story. Global buyout-backed exit value jumped 47% year over year to $717 billion, while the total number of exit transactions backed off slightly to 1,570, a 2% drop. Exit value below the $10 billion threshold still grew 34%, which is encouraging for owner-managed businesses. Global dry powder sits at $1.3 trillion, so the money to buy exists. What is scarcer is conviction about which assets deserve it.

Europe and the UK follow the global pattern. Bain’s Europe factbase reports that buyout investment rose 11% to $235 billion in 2025 and exits rebounded 64%. Industry data for the UK shows that private capital investment in UK businesses reached £25.0bn in 2025, supporting more than 1,400 businesses, and that 9 in 10 of those companies were small or medium sized. KPMG UK reported that PE-led deal count rose 4.4 percent in 2024, with mid-market volume up 15.5 percent. That is an earlier data point, but it confirms where UK activity sits.

The implication for a founder is that the market is open but not forgiving. Buyers can afford to wait, and they are comparing a founder’s business with every other opportunity in the same sector. A good year in the market does not substitute for a business that is easy to understand, verify and finance. Sellers who arrive with clean numbers and a credible management team find that capital appears; those who do not find that time passes.

What to do: choose the window in which you would be willing to sell, then work backwards. Decide which of your numbers a buyer would challenge, such as adjusted earnings, customer concentration and working capital, and assign an owner to each. Treat the next two years as preparation for a sale you control, rather than waiting for an approach that sets the timetable for you.

Sponsors are holding assets for longer. Bain reports that for buyout funds holding periods at exit are hovering around seven years, and that almost 40% of all companies are now held for more than five years, up from 29% in 2019. In Europe the average holding period at exit is nearing about 7 years against about 5 years in 2010. The stock of unrealised assets has grown to roughly 32,000 companies representing $3.8 trillion in value.

That backlog shapes how a private equity firm looks at your business. A sponsor that buys today expects to sell in around seven years, and it will need to find a buyer for your company at a time when it competes with thousands of other portfolio companies. It therefore underwrites not only what the business earns now but how easy it will be to sell later. A founder-led company with informal reporting and thin management is harder to sell on, and the buyer prices that difficulty in.

There is a second effect. The same sponsors that are buying are also sellers, and their unsold companies compete for the attention of the same strategic and financial acquirers who might buy a founder’s business. This is a reason for founders to be realistic about the buyers’ appetite for assets that need heavy work. It is also an argument for sellers whose business is ready to go: they stand out against a crowded field.

The implication is that governance and reporting are not administrative niceties. They are part of the product. Board-level reporting, a monthly close that finishes in days, a budget that is tracked and explained, and audited accounts all lower the effort a buyer must spend to believe your figures. A sponsor planning a seven-year hold will pay a better price for a business whose second sale is easy to imagine.

Sellers should also expect the buyer’s own lenders to look through the business. With borrowing costs in the 8%–9% range and leverage nearer 30%–40%, lenders give less room for error than a decade ago. They want predictable cash conversion and clean covenant reporting, which a founder-led business may never have produced. Showing early that the business can generate the monthly figures a lender needs widens the pool of sponsors willing to bid and shortens the diligence period.

What to do: ask what a second buyer would need to see. Put in place a reporting pack that you would be willing to show a stranger, a management team that does not rely on you for day-to-day decisions, and accounts that your auditor would stand behind. Introduce these changes at least a year before a sale, so that buyers see a history of them rather than a recent fix.

The economics of private equity have changed in a way that bears directly on price. Bain notes that in a typical 2015 buyout, 50% of the purchase price was borrowed at a 6%–7% interest rate. Today borrowing costs are in the 8%–9% range, while leverage ratios are closer to 30%–40%. Bain also finds that low interest rates led to steadily rising multiples, which powered over 50% of all buyout returns.

The consequence is a heavier burden on operating performance. A typical investment once required just 5% annual growth in earnings to generate a target 2.5x multiple on invested capital over a five-year holding period. Bain now puts the figure at something closer to 10%–12%. Its estimates of multiples show why: roughly 10.0x at entry and 12.5x at exit for 2015, against 14.0x at entry and 15.0x at exit for 2025, leaving little room for further expansion. Almost 80% of GPs surveyed believe multiples will stay flat.

For a founder this means that the buyer’s model starts with your earnings, not with the market multiple. A buyer needs to see a path to double-digit EBITDA growth that does not depend on lower borrowing costs or a higher exit multiple. It will therefore test whether reported earnings are repeatable, whether the growth plan is funded and whether margins can improve without damaging customer relationships. Every adjustment to EBITDA that you present is a claim the buyer will try to dismantle.

The practical result is that the headline multiple matters less than the earnings to which it is applied. A founder who negotiates hard on the multiple but has weak earnings quality will lose the difference during due diligence, through price reductions or changes to the structure. A founder with well-evidenced earnings can hold the price, because the buyer has less to dispute.

What to do: commission your own review of earnings quality before a buyer does. Reconcile management accounts to statutory accounts, document every adjustment, and separate recurring from one-off items. Build a growth plan that identifies the sources of the 10%–12% a sponsor needs, including pricing, new customers and cost, and test it against the evidence of the last three years.

Buyers test dependency early because it determines whether the business survives the founder’s exit. PwC’s 2026 perspective on what buyers really look for lists the quality of information, resilience of earnings, reliability of reporting, and the management team’s ability to articulate performance clearly and confidently. These are qualities of an organisation, not of a founder. A business that scores well on them can be run by someone else; a business that does not will be priced as a risk.

Typical tests follow from that. Buyers ask how much revenue depends on a handful of customers, how much of it is contracted and recurring, and how much is tied to the founder’s own relationships. They examine whether the finance function can close the month on time and explain variances. They look at the second tier of management: who would run sales, operations or technology if the founder left. Gaps in any of these become price chips or conditions.

The implication is that dependency is a financial issue as well as a people issue. A buyer who must replace the founder, hire a finance director and build a management layer after completion is taking on cost and execution risk, and will deduct both from the price or defer part of it through earn-outs. Founders often assume an earn-out is a bonus; it is also a signal that the buyer does not yet believe the earnings.

A related mistake is to present the founder’s personal expenses and discretionary spending as adjustments without documentation. Buyers accept legitimate add-backs but will reject unsupported ones and will start to doubt the rest. The same applies to related-party transactions, loans from directors and informal arrangements with family members. Clearing these up early is a sign of discipline and costs far less than defending them under diligence pressure.

What to do: map every key relationship, process and decision that runs through you, then reduce them one by one. Appoint or promote a finance lead who owns the monthly numbers, formalise customer contracts where they are informal, and give two or three leaders real authority and incentives. A buyer who sees the business running well without you for a year will pay for that evidence.

Tax is not the reason to sell, but it shapes the timing and structure of a UK sale. GOV.UK shows that Business Asset Disposal Relief applied at 10% on qualifying gains on or before 5 April 2025, at 14% between 6 April 2025 and 5 April 2026, and at 18% from 6 April 2026. For higher or additional rate taxpayers, GOV.UK shows that gains outside relief are taxed at 24% from 6 April 2026. These figures are information, not tax advice.

Because the 18% rate already applies to disposals from 6 April 2026, the pressure to rush before a rate change has gone. The more important feature is qualification. GOV.UK states that to qualify for relief, the conditions must apply for at least 2 years up to the date you sell your business or shares. A founder whose company has recently changed its trading profile, shareholding or role structure can therefore lose relief simply by selling too soon.

The implication is that tax planning belongs in the readiness programme from the start. Share structures, holdings by family members or trusts, the trading status of group companies and the treatment of surplus cash can all affect the position, and each takes time to change correctly. They also affect what a buyer will accept, because a restructuring done in the months before a sale invites questions about motive.

Founders sometimes treat the sale price as the only variable and the tax as a calculation made afterwards. In practice the structure of the deal, including how much is paid in cash, in shares or in deferred consideration, can change after-tax outcomes as much as a small movement in the headline price. Sellers who have taken tax advice early are able to compare offers on a like-for-like basis, rather than being surprised after heads of terms.

What to do: take advice from a qualified tax adviser at the start of your two-year plan, not when an offer arrives. Ask for a map of the qualifying conditions, the date from which each is met and the actions that would put them at risk. Keep a record of any change in the company’s structure, so that you can show a buyer and HMRC a coherent history.

A sale to private equity is one of several routes, and in 2025 it was not the fastest-growing. Bain reports that the strategic exit channel grew 66% year over year and expanded in both North America (by 73%) and Europe (by 82%). The sponsor-to-sponsor channel, meanwhile, was less robust, growing 21% globally. Corporate buyers are therefore competing with sponsors for the same assets, and they can often pay for synergies a sponsor cannot capture.

The choice matters because each buyer type values different things. A sponsor values predictable earnings, a management team that will stay, and a plan to grow at the rate its model needs. A strategic buyer values the customers, technology or capabilities it can add to its own business, and may be less concerned about the founder’s role. A founder who understands which type of buyer fits the business has a better chance of finding the best price, not only the highest bid.

The implication is that a dual-track process, run honestly, improves the sale. Even where a sponsor is the preferred buyer, a credible strategic alternative changes the negotiation. Conversely, a founder who talks only to sponsors may leave value on the table if a trade buyer would pay more for the same business. The cost of preparing for both is modest compared with the cost of discovering late that only one buyer was interested.

A further consideration is what happens after the sale. Selling to private equity often means rolling over part of your equity and staying involved, which makes the sponsor a long-term partner. Selling to a strategic buyer typically means integration and a shorter relationship. Neither is better in the abstract. The right route depends on whether you want to stay, how much risk you are willing to retain and what you want for the business’s people.

A final point on process: run it to a timetable you control. Founders who respond to an unsolicited approach tend to negotiate with one party, on the buyer’s schedule, with limited information about alternatives. Those who prepare can decide when to open the process, whom to invite and how much information to release at each stage. That control is the practical benefit of two years of preparation, and it is worth more than any single negotiating tactic.

What to do: define your own criteria before meeting buyers: price, certainty, role after the sale, treatment of employees and the proportion of proceeds you want in cash. Then test the market with both sponsors and strategic buyers, using the same information pack. Keep two or three parties in contention through to final offers, so that terms are compared rather than assumed.

The sellers who achieve the best outcomes are those who treat preparation as a project with milestones. Two years gives time to establish a track record. A buyer is more persuaded by eight quarters of reliable management reporting than by a year of improvement followed by a late fix. It also gives time to correct problems that cannot be fixed quickly, such as customer concentration, key-person dependence or an under-resourced finance function.

A sensible sequence begins with the numbers. In the first six months produce an independent view of earnings quality, a clean statutory and management accounts reconciliation and a view of working capital. In the next six months address the issues found, whether contractual, structural or people-related. In the second year demonstrate stability, with consistent quarterly reporting, a documented growth plan and a management team making decisions independently.

Cost is a legitimate concern, and the answer is to be specific about what the money buys. A finance director, a review of earnings quality and good legal housekeeping together cost far less than the price reductions that an unprepared business typically concedes in late negotiation. The sponsor’s own growth requirement of 10%–12% a year means it will also pay for a convincing plan, so investment in planning is not wasted if the sale does not happen.

The implication for the CEO is that exit readiness and business performance are the same agenda. The actions that make the company easier to sell, such as better data, stronger management and clearer customers, also make it easier to run. If a sale does not happen, the company is still more valuable. That is the strongest argument for starting early and the best protection against being forced into a sale on someone else’s timetable.

What to do: appoint a project owner, set a quarterly review at board level and agree the first six actions this month. Record the outcomes, so that when a buyer asks what has changed you can show a dated record. Revisit the plan each quarter against the market, and keep your adviser team informed so that you can act quickly if a strong approach arrives.

Karter McKinley supports founders and CEOs with M&A and corporate development: building the readiness plan, structuring the buyer process and coordinating the legal, tax and, where required, FCA-authorised advisers. This is information, not advice, and any engagement is scoped separately.