Private Equity is shifting from buying market leaders to building them

Jessica Ring examines how a maturing private equity ecosystem is changing ownership cycles and founder choices.

For much of the last decade, private equity followed a relatively simple model. Businesses were acquired and grown before being sold to a trade buyer, another fund or the public markets. Today, that model is evolving. Private equity has become so embedded in the UK mid-market that it is increasingly trading with itself.

Longer hold periods, a slower IPO market and a growing universe of private equity-backed businesses have created a more mature, self-recycling ecosystem. Sponsors need liquidity, while buyers are seeking proven platforms with further growth potential. Sponsor-to-sponsor transactions are therefore becoming an increasingly established exit route, shifting the market from a debate about public versus private ownership towards one increasingly defined by private versus private.

The implications are significant for investors and management teams. The central question in a transaction is about which owner is best positioned to deliver its next phase of growth rather than simply who wants to buy the business. More businesses will pass through multiple ownership cycles, with each sponsor expected to unlock a distinct stage of value creation before passing the baton to the next investor.

Founders are rethinking what success looks like

This evolution is also changing founder behaviour. Historically, many owners viewed a transaction as an all-or-nothing event but a growing number are now attracted to the opportunity to de-risk their personal wealth and bring in a strategic partner, while retaining meaningful exposure to future growth.

Rollover equity has therefore become a central feature of many transactions. It allows founders to share risk and secure capital and capability for the next growth phase while continuing to participate in the value they help create under new ownership.

Founders are increasingly assessing more than the highest headline valuation because of this. The quality of the partner, the balance between liquidity and future upside, and the investor’s ability to accelerate the business are becoming equally important.

For many entrepreneurs, the decision is now about how much of the journey they want to continue and which investor is best equipped to travel it with them.

The end of the historical growth story

To secure the right partner and structure, founders must respond to a higher bar from investors. Strong historical growth and margins still matter, but they are no longer sufficient on their own.

Buyers increasingly need conviction in a credible second value-creation plan that lays out what the business can accomplish in its next ownership cycle and why its best years remain ahead.

Private equity is consequently chasing characteristics more than sector labels. The assets attracting the strongest interest tend to combine market-leading positions, resilient or recurring revenues, strong margins and cash conversion, capable management teams and exposure to long-term structural growth.

It’s also increasingly building market leaders rather than buying them. Investors are becoming more creative in the face of elevated valuations and pressure to deploy larger funds. Rather than waiting for the perfect £10 million to £20 million EBITDA platform, many are deliberately acquiring smaller businesses where there is a credible consolidation strategy. Fragmentation can therefore be more attractive than incumbent scale. It offers a visible roadmap to build a category leader through disciplined bolt-on M&A, operational professionalisation, technology adoption and expansion into new geographies or routes to market.

The strongest sale processes will therefore demonstrate not only why a business has succeeded, but how the next owner can create the next chapter of value.

Why private equity continues to win

Despite macroeconomic uncertainty, private equity remains a compelling ownership model. Significant capital is available and competition between funds can support positive valuations for high-quality assets.

Its appeal extends beyond capital. The right sponsor can bring strategic expertise, industry networks, acquisition funding and execution capability that may be difficult to access independently. For ambitious management teams, the opportunity is often acceleration such as compressing five years of growth into three.

Accessing that opportunity on the right terms nevertheless requires preparation. The earlier owners define their objectives and formulate their next value-creation plan, the better placed they are to act decisively. Our recent research, The Decision Economy: Unlocking growth in the UK’s mid-market, found that slower decision making is costing the UK’s mid-market £12.9 billion in annual revenues.

At FRP Corporate Finance, we support clients from those early strategic discussions through positioning, investor selection, commercial negotiation and completion, helping them identify the right partner for the next stage.

The next decade of private equity will be defined by more sponsor-to-sponsor transactions, more businesses passing through multiple ownership cycles and more founders choosing partnership over outright exit. The winners will be businesses that can articulate the clearest next chapter rather than simply those that have grown fastest. In a market increasingly defined by private versus private, private equity will create tomorrow’s leaders as much as it acquires today’s.