Not every buyer wants the same thing, and the type of buyer you are talking to changes what a headline price actually means. The two most common types for a £1m to £20m business are a trade buyer and a private equity firm. Confusing them, or assuming either one is automatically the better route, is how owners end up agreeing to terms they would have negotiated differently if they had understood the buyer's own goal.
A trade buyer
Usually a company in your industry, or one close to it, buying for a strategic reason: your customers, a capability it does not have, a geography it wants to enter, or simply removing a competitor. A trade buyer can pay above a purely financial price when the strategic fit is strong, because the value to them is more than your standalone profit.
- Often wants to integrate your business into its own, which can mean your team, your systems or your brand changing, sometimes quickly.
- May want you to stay on for a defined handover period, occasionally longer if the business depends on you; see our guide to earn-outs for how that is usually structured.
- Pays, in most deals, mostly in cash at completion, though the balance between cash and deferred consideration is always a point to negotiate.
A private equity buyer
A financial investor, buying with the intention of growing the business and selling it again, typically within three to seven years. Rather than buying your whole business for cash, many private equity deals offer you a reduced stake, sometimes called rolling equity, alongside cash now, so you are paid again when they sell. This can mean a second, often larger, payday later, but it also means a second period of risk: the value of your rolled stake depends on how the business performs under new ownership and new debt.
- Usually prices the deal against a financial model and a required return, not strategic fit, so the multiple reflects risk and growth potential more than sentiment.
- Often brings debt into the business as part of the funding, which changes how much risk the business carries after you sell.
- May want you, or your management team, to stay and run the business, sometimes for years, under incentives tied to the next sale.
The trap to watch for with either one
Some buy-side investors, of both kinds, deliberately look for owners who have not taken independent advice and are not expecting a competing offer. The deal they offer is not necessarily dishonest, but it is often structured in their favour: a lower headline price, more of it deferred, and terms that assume you will not push back because you have nothing to compare it to. The protection against this is not suspicion of any one buyer type, it is having your own number before the call, from the valuation calculator or your own adviser, and your own adviser in the room once terms are discussed.
Which one is right for you
If you want a clean exit, mostly cash, and are comfortable handing the business to someone who will run it their way, a trade sale is usually the simpler route. If you believe the business still has significant growth ahead, you are willing to stay involved for several more years, and a second, larger payday is worth the extra risk and time, a private equity sale can pay more in total, though with less certainty and later. Neither is automatically right, and the same business can attract both kinds of buyer at very different prices. The valuation guide and the Harvest Score are the place to start before you take either kind of call, not after.
This guide is general education, not financial or legal advice. Take advice from your own adviser before agreeing terms with any buyer.
Common questions
What is the difference between a trade sale and a private equity sale?
A trade buyer is usually a company in your industry or an adjacent one, buying for strategic reasons such as customers, capability or removing a competitor. A private equity buyer is a financial investor, buying to grow the business and sell it again within a few years, typically keeping the existing owner or management involved and offering you a stake in the next sale as well as cash now.
Does private equity pay more than a trade buyer?
Not reliably either way. A trade buyer who gains something strategic, such as your customer base or your capability, can pay above a purely financial price. A private equity buyer prices on a financial model and a return it needs to hit, and often structures the deal so you keep a stake rather than paying everything in cash.
Is it true that some buyers target owners who have not prepared?
Some buy-side investors specifically look for businesses whose owners have not had independent advice and are not expecting a competing offer, and structure deals weighted toward deferred payment on favourable terms to them. Getting your own valuation and your own adviser before you take a call protects you whoever is on the other end of it.
General information to help you prepare, not tax, legal or financial advice. Rates and rules change; check the current position and take advice on your own circumstances.
