Two buyers, two different questions
A trade buyer is another operating company. It is asking: what is this business worth inside mine? Its model starts with your earnings and then adds the things that only happen once the two businesses are combined. One finance function instead of two. Your product sold into their customer base. Their supplier terms applied to your purchasing. A competitor removed from three of their tender lists.
A private equity buyer is a fund with investors and a clock. It is asking: what can I pay for this business, standing on its own, and still return two and a half to three times my money in about five years? Its model starts with your earnings and then works forward to an exit, backwards through debt, and lands on the highest price that still produces the return it promised its investors.
In one line: a trade buyer pays for what your business does for them. A private equity buyer pays for what your business will do for itself, and borrows part of the price against that. Two honest models, two different numbers, from the same set of accounts.
How a trade buyer gets to its number
Take a business with £1 million of adjusted EBITDA. A trade buyer in the same sector looks at it and sees £1 million of your profit plus, say, £250,000 of cost and revenue benefits it can identify with reasonable confidence. Its internal case is built on £1.25 million.
Here is the part owners rarely see. The buyer will not pay you for that £250,000. It might pay you for a slice of it, and only if it has to. Bidding 6x your £1 million gets it a business at an effective 4.8x post-synergy earnings. Bidding 7x still gets it 5.6x. The synergy is what gives a trade buyer the room to pay more than anyone else. Whether it uses that room depends entirely on whether someone else is in the process.
This is why the trade premium is real but conditional. One interested buyer is a valuation. Three are a price. A single trade buyer that approached you directly, unprompted, has no reason to price its own synergies into your bank account, and in my experience it does not.
Two other things shape a trade number. First, integration cost is a genuine deduction: moving your systems onto theirs, redundancy, rebranding, customer attrition through the transition. A buyer that has done this before models it, and it comes out of your price. Second, some trade buyers cannot pay a premium at all. The consolidator that has already bought two businesses like yours in your region has captured most of the synergy it needs. You are worth less to it than you would have been three years ago - an uncomfortable but useful thing to know before you assume the obvious buyer is the best one.
How a private equity buyer gets to its number
The private equity model is arithmetic in reverse, and it is worth walking through, because it tells you exactly which parts of your business are moving the price.
Same £1 million EBITDA business, and say the fund is prepared to pay 6x, or £6 million. How much of that comes from debt is the next question, and there is no published UK benchmark for businesses this size. The closest reliable figures are American: GF Data put average total debt at about 3.6 times EBITDA across sponsored deals of $10 million to $500 million of enterprise value in 2025, and J.P. Morgan Asset Management puts average leverage nearer 3.2 times for companies below $250 million. Both samples sit well above the size of most UK owner-managed businesses, and debt capacity falls as businesses get smaller, so two to three times is the sensible working assumption at our end of the market. Call it £2.5 million of debt and £3.5 million of the fund’s equity. To make 2.5x its money in five years, that £3.5 million has to become roughly £8.75 million.
Now run it forward. If the business is sold in five years on the same 6x, and debt has been paid down to £1 million, the business needs to be earning a little over £1.6 million of EBITDA for the equity to reach that figure. That is around 60 per cent EBITDA growth over five years, from a business you may currently be running comfortably and flat.
Which produces the single most important sentence in any conversation with a private equity buyer: if they do not believe the growth plan, they cannot pay the price, no matter how much they like the business. Their price is not an opinion about what you have built. It is an output of a model whose main input is the future.
That also explains the behaviour owners find strange. The forensic questioning of your pipeline. The commercial due diligence that phones your customers. The interest in whether the business runs without you, because a business that depends on an owner who is leaving cannot deliver a five-year plan. And the pressure on customer concentration, because debt does not care that your largest client has always renewed.
The headline price and the money you actually bank
Two offers of £6 million and £6.5 million are not comparable until you know how each one pays.
Deal terms have moved in the buyer’s favour across the market. SRS Acquiom’s 2026 study, covering more than 2,300 private-company transactions, found that all-cash deals fell to 51 per cent in 2025, from 58 per cent the year before - the lowest in four years. Deals combining cash with a management rollover rose to 21 per cent. Earn-outs appeared in 24 per cent, and the median earn-out was worth about a third of the cash paid at completion. Purchase price adjustments featured in more than nine deals in ten. That data is US-based and skews larger than our market, but it points the same way as everything we see in the UK: the headline number and the completion payment have been drifting apart.
| Trade offer | Private equity offer | |
|---|---|---|
| Headline price | £6.0m | £6.5m |
| Cash at completion | £5.4m | £4.55m |
| Deferred or retained | £0.6m deferred | £1.95m rolled equity (30%) |
| Certain money on day one | £5.4m | £4.55m |
Illustrative structures based on typical UK lower mid-market terms, not a quotation.
The higher headline carries the lower certain number. The gap is not a discount, it is a bet: how much your minority stake in a debt-funded business is worth in five years’ time. That is the whole decision in one sentence. Judge each offer on the money that is certain, then decide separately whether you want to own the piece that is not.
What the rolled equity has to do to be worth it
Rollover is where private equity does most of its persuading, and the pitch is usually the second bite: the stake you keep is worth more than the stake you sold. Sometimes that is exactly what happens. I have seen owners make more from the second exit than the first.
But be clear about what you now own. You own a minority stake in a business carrying debt it did not carry before, run to a plan you no longer control, with an exit date set by someone else’s fund cycle. The gearing works both ways. If the plan lands, debt paydown plus earnings growth multiplies your stake. If EBITDA comes in ten per cent below plan for two years, the debt still has to be serviced, and minority equity is the first thing to be compressed.
What moves the number, whoever is bidding
The same handful of features raises the price in both models, which is convenient, because it means the preparation work is the same whichever buyer eventually turns up.
Does the business run without you? A trade buyer discounts owner dependency because it has to replace you. A private equity buyer discounts it harder, because its whole plan assumes management can execute. Recurring or contracted revenue is worth more than repeat goodwill, and in most sectors it is the single strongest lever on the multiple. Customer concentration cuts the price in both models. Clean, timely management accounts do not raise the multiple on their own, but their absence reliably lowers it once due diligence starts finding surprises.
Work on those in the eighteen months before you go to market and you improve both offers at once.
You may not have both buyers
The comparison in this article assumes you have a choice. Plenty of owner-managed businesses do not.
Below roughly £750,000 of EBITDA, most institutional private equity funds are not buyers of your business as a platform at all. They may back a consolidator that buys you as an add-on, which is a different conversation with a different pricing logic. If your business is genuinely owner-dependent, or your growth has been flat for five years and you are honest enough to say so, private equity will pass - and the real choice is between trade buyers, a management buyout, an employee ownership trust, or not selling yet.
That is not bad news. It is just information you would rather have before you spend six months preparing for a process aimed at the wrong audience.
Where we come in
We advise owners on both routes, and we run our own group’s acquisitions, so we build these models from the buying side as well as reading them from the selling side. In practice that means we can tell you fairly early which buyers are realistic for a business like yours, what each one’s model can actually stretch to, and where the negotiating room sits in each structure. We work on transactions from around £500,000 to £20 million, and we are part of the dns accountants group, which means the tax conversation happens alongside the deal rather than after it.
If you are twelve to eighteen months from a sale, that is the useful moment to talk. Most of what raises a price is done before a buyer ever sees the file.
Sources: BDO Private Company Price Index and Private Equity Price Index. SRS Acquiom 2026 M&A Deal Terms Study (2,300+ private-target deals, 2020-2025). GF Data via CIBC US Middle Market Monitor Q1 2026; J.P. Morgan Asset Management leverage data (both US, larger deals than the UK lower mid-market). HM Treasury / HMRC: EOT relief at 50 per cent for disposals from 26 November 2025; CGT 24 per cent main rate, BADR 18 per cent from 6 April 2026. Illustrative multiples, structures and timescales are drawn from our own transaction experience and are a rough guide, not a quotation. Figures verified at the date of writing.
Frequently asked questions
Does a trade buyer always pay more than private equity?
No. A trade buyer can pay more, because synergies give it room a financial buyer does not have. Whether it uses that room depends almost entirely on whether it is competing. Published UK indices have in fact recorded private equity paying higher average multiples than trade in recent years, though the gap is partly explained by private equity buying larger businesses.
Should I approach both types of buyer?
Usually yes, if both are realistic. Running trade and private equity in parallel gives you a genuine comparison rather than a theoretical one, and the presence of one type tends to sharpen the other. The cost is process discipline: sharing commercial information with a competitor needs staged disclosure and proper confidentiality protection.
How much equity will a private equity firm expect me to roll?
It varies with the deal and how central you are to the plan, and anyone quoting a fixed percentage before seeing the business is guessing. What matters more than the percentage is the terms attached: your rights on an early or late exit, and what happens to your stake if further equity is issued.
Will a trade buyer make my staff redundant?
Some overlap is often part of the commercial case, and it is usually concentrated in back-office functions rather than the people delivering the work. Ask directly, early, and ask what the buyer did after its last acquisition. Past behaviour is better evidence than intentions expressed in a meeting.
My business is too small for private equity. What are my options?
Trade buyers, including private-equity-backed consolidators buying you as an add-on, a management buyout, an employee ownership trust, or waiting and growing. Be careful with the tax assumption on the last of those: for disposals on or after 26 November 2025, a sale to an employee ownership trust attracts 50 per cent capital gains tax relief rather than the full exemption people often assume, and Business Asset Disposal Relief cannot be claimed on the taxable half - an effective rate around 12 per cent for a higher-rate taxpayer. Still efficient, but no longer tax-free.
How long does each route take?
As a rough guide, three to six months from agreed heads of terms to completion on a trade deal, and longer with private equity, where commercial due diligence and debt financing both add time. The bigger variable is not the buyer type. It is how ready your information is on day one.
Accurate as at the date above. Tax rules and lending criteria change, and your position depends on your own numbers - take advice before acting on anything here.