Private equity firms aren’t just looking to buy businesses — they’re looking to grow them, scale them, and ultimately sell them for a return. That means the way they assess a potential acquisition goes beyond the basics of profitability. Understanding what private equity (PE) really looks for can help business owners position themselves more effectively — whether they’re preparing to sell now or in the future.
It’s Not Just About the Numbers
While strong financials matter, PE firms are ultimately buying future potential — not just past performance. They want to know:
- Can this business scale quickly and sustainably?
- What levers exist to increase value?
- How quickly can they realise a return on investment?
Every deal is judged through that lens.
1. A Predictable and Scalable Revenue Model
PE investors love recurring or repeatable revenue. Businesses with subscription models, long-term contracts, or embedded customer relationships are inherently more valuable.
They’ll assess:
- Revenue concentration: Are you overly reliant on a handful of clients?
- Churn: Are customers sticking around?
- Margin profile: Is there room to increase margins as you scale?
Consistency reduces risk — and risk is something PE firms price into every deal.
2. Strong (and Replaceable) Leadership
Founders often play an outsized role in their businesses. PE firms will want to know:
- What happens if the founder steps back?
- Is there a competent, committed management team in place?
- Can the leadership team execute a growth plan without daily hand-holding?
If the business can’t run without you, it’s not an investable asset — it’s a job with overheads.
3. Clear Opportunities for Growth
PE firms need headroom. They’re looking for businesses with:
- Untapped markets — Can you expand geographically or into new segments?
- Product extensions — Are there adjacent offerings customers would buy?
- Operational improvement — Are there inefficiencies that could be fixed to improve EBITDA?
The ideal target is already profitable but still has room to grow. PE wants to bring capital, expertise and structure — not build from scratch.
4. Clean Financials and Operational Visibility
One of the quickest ways to kill a deal? Disorganised or unreliable numbers.
PE firms will expect:
- Up-to-date, audited financials
- Clear cash flow and working capital position
- Robust systems and controls
- Accurate forecasting and budgeting
A messy back office can raise red flags — and drive down your valuation.
5. A Defensible Market Position
Competitive edge matters. PE firms will assess:
- Do you have pricing power?
- Is your IP or tech differentiated?
- What barriers exist for competitors entering your space?
They want to avoid commoditised markets where value erodes quickly or competitors can copy and undercut.
6. Exit Potential
This is core. PE firms want to know how they’ll exit — and who might buy the business later.
- Will a trade buyer see strategic value in 3–5 years?
- Can the business IPO or attract a secondary buyout?
- Are there bolt-on or platform opportunities?
If there’s no clear path to exit, there’s no deal.
Positioning Your Business for PE Interest
If you’re thinking about selling to private equity, consider:
- Professionalising your finance function
- Building out your second-tier leadership team
- Documenting operational processes
- Reducing over-dependence on the founder or key clients
- Articulating a compelling 3–5 year growth plan
These moves not only increase your appeal to PE — they also drive up value, whatever the exit route. If you are considering selling your business to private equity, our exit strategy advisors can help you to position for the exit you want.
