What is Private Equity

What is Private Equity?

Private equity is investment capital provided by funds and firms that acquire ownership stakes in companies that are not publicly listed on a stock exchange. Private equity investors — typically specialist investment firms managing capital on behalf of institutional investors such as pension funds, university endowments, insurance companies, and sovereign wealth funds — take positions in businesses with the objective of improving their performance over a defined investment horizon, usually three to seven years, and then realising their return through an exit: a trade sale, a secondary buyout, or a public listing.

For business owners and management teams in the UK, private equity is most commonly encountered as a source of growth capital, a mechanism for management buyouts, or as the buyer in a business sale process. Understanding how private equity works — how PE houses assess targets, what they require from the management teams they back, and what the investment period looks and feels like from inside the business — is essential preparation for any business considering a PE transaction.

This guide is written from the perspective of FD Capital’s team — a specialist CFO and Finance Director recruitment firm that has worked with businesses preparing for, completing, and operating post-PE investment since 2018. Our team has direct experience of the private equity investment process from both sides, and the observations in this guide reflect that practical experience rather than a theoretical overview.

Call 020 3287 9501 or email recruitment@fdcapital.co.uk to discuss your PE-related CFO or Finance Director requirement.

“FD Capital has supported SBS Insurance Services over the past three years through the provision of a Fractional FD/CFO. Their expertise has made a significant difference in professionalising our finance function and delivering accurate, timely management information — exactly what our business needed to grow with confidence.”

— Tracey Rees, COO, SBS Insurance Services Ltd

How Private Equity Works

Private equity firms raise capital from institutional and high-net-worth investors into closed-end funds — pools of committed capital with a fixed investment period, typically ten to twelve years. The fund’s investment managers — referred to as general partners (GPs) — deploy this capital by acquiring stakes in target companies during the first four to five years of the fund’s life (the investment period), then work to improve those companies’ performance and value during the holding period, before exiting their positions in the final phase of the fund’s life.

The return to investors — referred to as limited partners (LPs) — is generated from the difference between the price paid for the portfolio company at entry and the proceeds received at exit, net of fees. Because private equity funds use leverage — debt secured against the portfolio company’s assets or cash flows — to amplify the equity return, the finance function of a PE-backed business faces significantly more demanding financial management requirements than an equivalent privately-owned business without institutional investors.

The British Private Equity and Venture Capital Association (BVCA) represents over 700 member firms in the UK PE and VC ecosystem and publishes annual data on UK private equity activity. The UK is the largest private equity market in Europe, with billions of pounds deployed annually across thousands of portfolio companies at any point in time.

The private equity investment cycle

The PE investment cycle has four distinct phases, each of which makes specific demands on the portfolio company’s finance function:

Origination and deal sourcing — the PE house identifies target businesses through proprietary deal flow, intermediary introductions (corporate finance advisers, accountants, lawyers), or auction processes. During this phase, the target business’s finance function is assessed as part of the initial due diligence. The quality of management accounts, the credibility of the CFO, and the financial preparedness of the business are evaluated before a term sheet is issued.

Due diligence and transaction — once a target has been identified and a price agreed in principle, the PE house conducts detailed financial, commercial, legal, and tax due diligence. Financial due diligence — typically conducted by an independent accountancy firm such as Grant Thornton, BDO, or Deloitte — examines the quality of the management accounts, the EBITDA normalisation, the working capital dynamics, and the financial controls. The finance function is under intense scrutiny during this phase, and a CFO who is well-prepared, credible under questioning, and in command of the business’s financial detail is a material contributor to deal confidence and valuation.

Value creation — during the investment period, the PE house works with the management team to execute the value creation plan. This typically involves revenue growth acceleration, margin improvement, operational efficiency, and in many cases bolt-on acquisitions. The CFO is a central participant in this agenda — providing the financial analysis, modelling, and reporting that the PE house uses to track progress against the plan.

Exit — the PE house seeks to exit its investment at a multiple of the entry price. The exit options include a trade sale to a strategic acquirer, a secondary buyout to another PE house, or an IPO. Each exit route makes specific demands on the CFO, from preparing the vendor due diligence pack to managing the IPO prospectus financial sections. See our CFO for business sale page for exit-specific context.

Types of Private Equity Investment in the UK

Private equity is not a single, uniform investment type. The UK PE market encompasses a range of investment structures, each targeting different stages of business development and requiring different responses from the finance function.

Growth capital investment

Growth capital — also referred to as growth equity — involves a PE house acquiring a minority or majority stake in a profitable, cash-generative business to fund an acceleration of its existing growth strategy. The business retains its existing management team and operating model, and the PE house’s primary contribution is capital, strategic guidance, and the network of operational expertise that larger PE firms can provide. Growth capital is typically the least disruptive form of PE investment for owner-managed businesses approaching institutional investment for the first time.

The Business Growth Fund (BGF) is the UK’s most active growth capital investor, providing capital to businesses with revenues of £5m–£100m without requiring majority control. BGF has backed over 500 UK businesses since its formation and is a frequently encountered first institutional investor for owner-managed businesses.

Leveraged buyout (LBO)

A leveraged buyout involves the PE house acquiring the target company using a combination of equity — from the fund — and debt — secured against the target’s assets or cash flows. The use of leverage amplifies the equity return if the business performs as planned, but it also significantly increases the financial management demands on the portfolio company’s CFO. Debt covenant compliance — testing leverage ratios, interest cover ratios, and cash flow cover ratios on a monthly or quarterly basis — is a continuous obligation that requires a CFO with specific experience of leveraged financial management. A covenant breach is one of the most serious events in a PE-backed business’s life, with potentially severe consequences for the company and the management team. The CFO’s role in preventing this is fundamental.

Management buyout (MBO)

In a management buyout, the existing management team — typically the CEO, CFO, and a small group of operational directors — acquires the business from its current owner, usually with PE backing providing the majority of the capital. MBOs are common in family business succession events, corporate carve-outs, and owner retirements. The management team co-invests alongside the PE house, typically through a sweet equity arrangement that gives them a disproportionate share of the exit proceeds if the business performs above the base case. See our guide to sweet equity for detail on management equity structures in PE transactions.

Buy-and-build

Buy-and-build is a strategy in which a PE house acquires a platform business and then makes a series of bolt-on acquisitions to build scale, geographic reach, or capability. This is one of the most demanding PE environments for a CFO because the acquisition process never stops — while managing the existing portfolio company’s financial reporting, the CFO is simultaneously running financial due diligence on acquisition targets, integrating acquired businesses, and managing an increasingly complex multi-entity group. A CFO with buy-and-build experience is a specific and valuable profile that FD Capital actively recruits for.

Venture capital

Venture capital — while technically a subset of private equity — operates with a distinct investment model focused on early-stage and growth businesses that are not yet profitable but have high growth potential. VC firms typically take minority stakes and support multiple rounds of investment as the business scales. The financial requirements of a VC-backed business — ARR/MRR reporting, burn rate management, cap table management, R&D tax credits — differ materially from those of a PE-backed business. See our Series A CFO and recruiting a CFO with VC experience pages for the VC-specific context.

Private Equity vs Venture Capital: The Key Differences

The distinction between private equity and venture capital is frequently misunderstood. Both involve investment in private companies, but the two models differ fundamentally in their target business profile, investment structure, and financial management requirements.

For businesses deciding which investment route is appropriate, the key question is the stage and profitability of the business. Profitable, cash-generative businesses with revenues typically above £2m EBITDA are generally PE targets. Pre-profit or early-revenue businesses with very high growth potential are VC targets. Many businesses bridge the two — raising VC capital at seed and Series A stages before transitioning to PE growth capital or a PE acquisition once profitability is established.

See our recruiting a CFO with PE experience and Series A CFO pages for the specific finance executive requirements at each stage.

What Private Equity Investors Look For in a Target Business

Understanding what PE investors assess when evaluating a target business is essential preparation for any owner considering a PE raise. PE houses are not simply providers of capital — they are sophisticated financial buyers who will examine every aspect of a business’s financial performance, management quality, market position, and growth potential before committing to an investment.

EBITDA quality and sustainability

The primary valuation metric in private equity is EBITDA — earnings before interest, taxes, depreciation, and amortisation. Enterprise value in a PE transaction is almost always expressed as a multiple of EBITDA, so the quality, accuracy, and sustainability of the EBITDA figure is the most important financial characteristic of any target business. PE houses are particularly focused on the “normalised” EBITDA — the underlying earnings power of the business after removing one-off costs, owner benefits, and other distortions from the reported figure.

A business that can present a clean, well-documented EBITDA bridge — showing the adjustments from statutory accounts to normalised EBITDA — will achieve a better valuation outcome than one where the adjustments are discovered and disputed by the PE house’s financial due diligence advisers. See our EBITDA guide for detail on normalisation and the specific adjustments PE houses scrutinise.

Management team quality

PE houses invest in management teams as much as in businesses. The quality, completeness, and depth of the management team — including, critically, the finance function — is a major factor in both the investment decision and the valuation. A business with a strong CEO and a credible, PE-experienced CFO will attract more investor confidence and command a higher multiple than an equivalent business where the finance function is weak. This is the direct commercial reason why appointing a qualified CFO before a PE raise is one of the highest-return investments a business owner can make. See our investor-ready CFO page for detail on finance function preparation.

Market position and growth potential

PE investors need a credible narrative for how the business will be more valuable at exit than at entry. This requires a defensible market position — a business that is not easily replicated or displaced by competitors — and a realistic growth strategy. The CFO’s financial model is the quantitative expression of this growth strategy, and its credibility directly affects investor confidence in the investment case.

Financial reporting and controls

PE investors expect management accounts to be produced monthly, within ten working days of month-end, and to meet a standard of accuracy and analytical depth that most owner-managed businesses have never previously required. They also expect robust financial controls — segregation of duties, proper audit processes, VAT compliance, and employment tax compliance. Deficiencies in financial reporting or controls discovered during due diligence are significant negative factors that damage valuation and sometimes cause deals to fail. See our management accounts guide and guide to preparing for private equity investment for detailed preparation guidance.

The Role of the CFO in Private Equity Investment

The CFO is the most important management hire a business makes in the context of private equity — both in preparing for investment and in managing the business post-investment. This is one of the most consistent observations from FD Capital’s experience working with PE-backed businesses across the UK.

Why PE investment requires a CFO

Private equity investment fundamentally transforms the financial management requirements of a business. The reporting obligations — monthly management accounts within tight deadlines, quarterly investor reports, covenant compliance testing, board pack production — are more demanding than anything most owner-managed businesses have previously experienced. The analytical requirements — financial modelling, scenario analysis, acquisition appraisal, EBITDA bridge presentation — require senior finance capability that a finance manager or bookkeeper cannot provide. The investor relationship — a continuous, structured dialogue with the PE house’s investment team — requires a CFO who can present financial information credibly and handle detailed questioning from experienced investors.

Most PE houses either require or strongly expect a qualified CFO appointment as part of the investment, and many make it a formal condition of the deal. FD Capital handles this specific scenario regularly — where an investor has made the CFO appointment a condition of completing or drawing down the investment. See our CFO as a condition of PE investment page for how we deploy in this situation.

What PE investors require from the portfolio CFO

The specific capabilities PE investors look for in a portfolio company CFO include: direct experience of operating in a PE-backed business (not just advisory experience or awareness of PE); the ability to produce management accounts within eight to ten working days of month-end; experience of covenant compliance and leveraged financial management where the transaction involves debt; credible investor-facing communication; and the commercial finance contribution to the value creation agenda — financial analysis, acquisition modelling, pricing work — that goes beyond conventional financial reporting.

FD Capital recruits specifically against these criteria. We do not present candidates who lack direct PE-backed business operating experience to PE mandates. See our CFO recruitment for PE-backed businesses and PE house CFO recruitment pages for the full profile we recruit to.

“Adrian worked with us as our Fractional CFO for six months and we are genuinely grateful for the contribution he made. His financial expertise and calm, professional approach gave us confidence in our numbers and supported better decision-making across the business. I would recommend Adrian and FD Capital without hesitation.”

— Josh Haugh, MAS Technicae Group (International) Ltd, West Sussex

How to Prepare Your Business for Private Equity Investment

The businesses that navigate PE investment most successfully — achieving the highest valuations, completing the fastest due diligence processes, and transitioning most smoothly into the post-investment period — are those that prepared their finance function before the investors arrived. The preparation work is significant, and it takes time. Twelve to eighteen months of focused effort by a qualified CFO before a PE process begins is the investment that generates the highest return on the investment itself.

The key preparation tasks are:

Management accounts quality — implementing a monthly close process that produces investor-grade management accounts within ten working days consistently, for at least twelve months before the process begins.

Financial model — building a three-statement financial model that is clearly linked to the operational drivers of the business, capable of withstanding detailed investor scrutiny, and maintained as a live planning tool rather than a static projection.

EBITDA normalisation — identifying all legitimate normalisation adjustments — owner benefits, one-off costs, non-recurring items — and preparing a well-documented EBITDA bridge that can be presented proactively rather than contested during due diligence.

Compliance review — ensuring that VAT, employment tax, R&D tax credit claims, and corporate structure are clean and properly documented before investors begin their scrutiny.

Data room preparation — building and organising the financial section of the data room — statutory accounts, management accounts, financial model, bank statements, contracts — in advance of the formal process.

Our dedicated guide on how to prepare for private equity investment covers each of these workstreams in detail, including the timeline recommendations, the specific documents required, and the CFO’s role in managing each element of the preparation.

The UK Private Equity Landscape: Key Investors and Advisers

Understanding the structure of the UK PE market helps business owners identify the right investors to approach and the advisers they will need to engage. The UK PE market is broadly segmented by deal size:

Small-cap private equity (EV typically below £25m)

The small-cap market is served by a range of specialist investors including BGF, Maven Capital Partners, NVM Private Equity, YFM Equity Partners, and a range of regional PE funds. These investors typically back owner-managed businesses making their first transition to institutional capital. The CFO requirements at this deal size are often met by a fractional or part-time appointment, as the business’s size does not always justify a full-time CFO at the point of investment.

Lower mid-market (£25m–£75m EV)

The lower mid-market is the most active segment of the UK PE market by deal count. Investors active in this space include Beechbrook Capital, Livingbridge, LDC (part of Lloyds Banking Group), and numerous other specialist funds. Transactions at this level almost always require a permanent, full-time CFO with relevant PE experience. Covenant-based debt financing is standard.

Mid-market and large-cap (above £75m EV)

The mid-market and large-cap segments are served by the major international PE houses — including firms such as Bridgepoint, Apax Partners, CVC Capital Partners, and Permira — as well as the large-cap arms of global investment firms. At this level, the CFO profile is highly specific: a seasoned PE-backed CFO with direct experience of complex leveraged structures, sophisticated LP reporting, and institutional-grade financial governance.

Corporate finance advisers for PE transactions

Most PE transactions for UK businesses are managed through a specialist corporate finance adviser — the M&A boutique or accountancy firm corporate finance team that represents the seller or management team in the process. The quality of the corporate finance adviser, and the quality of the financial information that the CFO provides to them, together determine the quality of the PE process and the outcome achieved. Leading corporate finance firms in the UK mid-market include Clearwater International, DC Advisory, Livingstone Partners, and the corporate finance arms of the Big Four and mid-tier accountancy firms.

Private Equity and EIS / SEIS: Alternative Investment Routes

Not all PE-related investment in the UK comes through institutional PE houses. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are government-backed tax-incentivised investment vehicles that allow smaller amounts of capital to be raised from angel investors and family offices. EIS and SEIS investment is common for businesses at earlier stages than typical PE, and the financial management requirements — HMRC advance assurance, compliance monitoring, investor certificates — are specific and demanding.

FD Capital places CFOs with direct EIS and SEIS experience for businesses raising through these schemes. See our EIS and SEIS fundraising guide for comprehensive detail on the CFO’s role in these raise types.

Private Equity CFO and Finance Director: Salary and Rate Guide

PE-backed CFO compensation almost always includes a performance element — a bonus tied to EBITDA growth or deal completion — and management equity participation for CFOs who join at or near deal entry. See our CFO salary guide and sweet equity guide for full benchmarking.

Frequently Asked Questions

What is the minimum size for a private equity investment in the UK?

There is no formal minimum, but institutional PE funds rarely invest below £1m–£2m of equity. In practice, the smallest PE transactions in the UK market involve enterprise values of £2m–£5m, served by smaller specialist funds and family offices rather than mainstream PE firms. BGF, the UK’s most active growth investor, invests from £1m upwards in businesses with revenues of £5m or more. For businesses below this threshold, EIS and SEIS angel investment is typically the more accessible institutional investment route.

Does our business need a CFO before approaching private equity?

Yes — in practice if not always in theory. PE investors will assess the quality of the finance function as part of their initial evaluation. A business without a qualified CFO will be asked to appoint one before or immediately after investment, and many PE houses make the appointment a formal condition of the deal. Appointing a CFO before the PE process begins — ideally twelve months before — is significantly more effective than making the appointment reactively. See our investor-ready CFO page for preparation guidance.

What is the difference between private equity and a bank loan?

A bank loan provides debt capital that must be repaid with interest, with no ownership stake transferred to the lender. Private equity provides equity capital in exchange for an ownership stake, with the PE investor’s return realised through the future growth in the value of that stake rather than through interest payments. PE investment is therefore more suitable for businesses that want a long-term partner to support growth but are willing to share the ownership and ultimate proceeds of that growth. PE investment also typically involves a more active investor relationship than a banking arrangement — the PE house will have board representation and ongoing involvement in strategic decision-making.

How long does a private equity process take?

The timeline from initial investor conversations to deal completion typically runs from four to nine months for a competitive process with multiple bidders. A bilateral (single-buyer) process can be faster — sometimes as little as three to four months — if both parties are motivated and the due diligence is clean. The financial due diligence phase — typically six to ten weeks — is often the longest single element, and its duration is heavily influenced by the quality of the financial information that the CFO provides in response to queries.

What happens to the existing management team after a PE investment?

In the majority of PE transactions, the existing management team remains in place — this is a feature of PE investment rather than a trade sale, where the acquirer may want to merge management functions. The PE house invests in the management team as well as the business, and retaining the team’s knowledge and relationships is important to the investment thesis. Management teams typically participate in the investment through a co-investment or sweet equity arrangement that aligns their financial interests with the PE house’s return objectives. The CFO may be an existing team member or a new appointment — depending on whether the existing finance function meets the PE house’s standards.

Can FD Capital help us find a CFO for our PE-backed business?

Yes — this is one of FD Capital’s primary areas of specialisation. Our team places CFOs and Finance Directors for PE-backed businesses across the UK at every stage of the investment cycle, from pre-deal preparation through to exit. We place on fractional, interim, and permanent bases and can deploy at short notice for urgent requirements. See our CFO recruitment for PE-backed businesses and PE house CFO recruitment pages, or call 020 3287 9501 directly.

Related Services

How to Prepare for Private Equity Investment | CFO as a Condition of Investment | Investor Ready CFO | CFO for Fundraising | PE House CFO Recruitment | Series A CFO | CFO for Business Sale | Increasing Business Valuation with a CFO | CFO Recruitment for PE-Backed Businesses | Recruiting a CFO with PE Experience | Private Equity Finance Director | Portfolio Finance Directors | Fractional CFO | Interim CFO | M&A CFO | Sweet Equity Guide | EBITDA Guide | EIS and SEIS Fundraising | Raise Private Equity | Transformation CFO & FD | CFO Salary Guide