Private equity (including buy-outs)
A private equity firm takes a large or controlling stake in a mature business to help it grow, often through a management buy-out or buy-in, and sells the stake a few years later.
- Shares
How it works
Private equity (PE) invests in more mature companies than venture capital does. A PE firm usually takes a large or controlling stake, and existing shareholders may receive cash for their shares.
- Buy-out: buying a majority stake (often over 50%), which gives control of day-to-day operations.
- Management buy-out (MBO): the existing management team buys the business, often backed by PE.
- Management buy-in (MBI): an outside management team buys in.
- Leveraged buy-out: a buy-out funded largely with borrowed money.
PE firms work closely with management to improve the business, and usually aim to sell their stake after four to seven years, through a stock market listing, a sale to a company, or a sale to another investor.
Upsides and downsides
Upsides
- Large amounts of capital plus hands-on operational expertise
- Owners can take some cash out
- A route to succession, for example through a management buy-out
Downsides
- You usually give up control
- Investors push hard for growth and an exit within a few years
- Leveraged deals add debt to the business
Risks
- Losing control of the business you built
- The business struggling with debt taken on in a leveraged buy-out
- Strategy set by the investor's exit timetable
What it costs
- How it is priced
- A large or controlling stake in the company
- Costs that are easy to miss
- Legal, accounting and due diligence costs
- Debt taken on as part of a leveraged deal, which the business must service
- Investor rights and reporting requirements
Usually larger sums, sized to the business's value and growth plan.
Does it fit?
Could fit when
- You run an established, profitable business with growth potential
- Owners want to sell some or all of their stake, or management want to buy the business
Unlikely to fit when
- You want to keep control
- The business cannot support extra debt
- Your business is not yet established (private equity usually backs established, mature businesses)
Who can use it
- Business types: Private limited company, Public limited company
- Usually needs a profitable business
- Usually established, mature businesses
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all private equity investment
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- Audited accounts and track record
- Strong management team
- Growth and value-creation plan
Regulation and protections
There is no compensation scheme for the company or its owners. Your protection comes from the deal documents, so take legal and financial advice. You can check a fund manager on the FCA Register.
Types of provider: Private equity firms; Growth equity funds.
Also consider
Sources
- British Business Bank: Private equity · checked 7 October 2026