Private equity (”PE”) capital flows toward businesses that combine quality, predictability, and growth opportunity.
Understanding what PE looks for impacts how we shape a business for sale. While every fund has its own mandate, the characteristics of an “investable” business are consistent. PE investors seek companies with durable earnings, a clear competitive advantage, and the organisational depth to scale.
The Drivers of an Investable Business are:
For private equity, the quality of earnings underpins any investment thesis. They need confidence not only in how the business performs today, but in how stable that performance will be over time.
Predictability reduces underwriting risk, strengthens lender confidence, and supports higher valuation multiples.
Investors look for earnings profiles that exhibit:
Recurring revenue – repeat, often contracted business from subscriptions, long-term contracts (e.g., a Netflix subscription)
Reoccurring revenue – serving the same set of customers over multiple points in time (e.g., purchasing the same brand of toothpaste)
High customer retention / low churn – the extent to which customers continue to purchase a product or service
Low customer concentration – a diversified revenue base that insulates the business from losing any single customer
Defensible margins – indicating pricing power, operational discipline, and barriers to entry that competitors struggle to overcome.
High margins – stronger profitability provides a buffer against economic downturns, allows greater flexibility to absorb cost shocks, supports sustained investment in growth, and drives more stable, resilient cash flows across cycles.
High-quality earnings boil down to visibility. Those that can forecast the next 12–24 months with reasonable accuracy are inherently more investable. In certain sectors, such as consumer products or construction, one-off revenue is a feature. For these businesses, investors focus on repeat purchase cycles, customer acquisition efficiency, and lifetime value, ensuring that the economics remain attractive even with natural customer turnover.
While private equity typically acquires a business based on a multiple of today’s financials, it is underwriting the company’s ability to maintain and extend its position over the next 4-7 years.
A defensible market position reduces competitive risk, supports pricing power, and provides a strong platform for both organic and inorganic growth. Businesses with structural protection are more resilient to shocks and more likely to create sustainable value post-investment.
We evaluate defensibility with a combination of qualitative and quantitative metrics, including:
Differentiated product or service offering – a solution that is meaningfully better (i.e., faster, cheaper, higher-quality, more reliable) than competitors
Competitive moat – intellectual property, proprietary technology, regulatory licences, trusted brand, network effects, or other scale advantages that new entrants struggle to replicate
Favourable market structure – where the economics reward strong operators. For example, fragmented industries with sub-scale competitors, where consolidation creates leadership positions and margin expansion.
Pricing power and margin resilience – maintain or increase pricing without losing customers.
For PE, these features reduce downside risk and create confidence in a business’s quality.
Private equity investors back people as much as they back businesses.
The highest quality businesses will underperform without a capable leadership team to execute. A strong management team not only reduces execution risk, it’s also one of the most reliable predictors of future performance.
Investors assess leadership strength across several dimensions:
A capable senior team – individuals with a track record of delivering results
Functional ownership – defined roles across finance, operations, and commercial functions
Depth – beyond the founder or CEO, investors look for a second line of leadership. For example, rising managers, department heads, and functional specialists who can step into bigger roles as the business scales.
A strong management bench creates the bandwidth needed to execute growth levers.
While PE will often strengthen teams by adding CFOs, commercial leaders, chairs, or operating partners, they still require a base foundation – a core team that is stable, capable, and aligned. Investors are comfortable plugging gaps, but don’t often build an entire leadership function from scratch.
PE conviction increases significantly when a business has a professionalised finance function. Accurate monthly reporting and clear financial data give the visibility they need to form conviction.
When numbers are inaccurate or incomplete, confidence drops quickly. Gaps in accounting introduce uncertainty, slow down processes and put downward pressure on valuation. Clean, reliable financials de-risk a transaction and materially improve the likelihood of a successful outcome.
PE groups place a premium on businesses with market tailwinds.
Positive changes to regulations, an increasing market size or demographic shifts can enhance growth potential. A large total addressable market, increasing customer demand, and a fragmented competitive landscape create opportunities for both organic expansion and bolt-on acquisitions.
Even a high-quality business becomes harder to scale in a shrinking or structurally challenged market. Limited demand, declining relevance, or concentrated competition dampen growth prospects, expected returns and therefore PE conviction.
PE want businesses aligned with markets that will support long-term value creation:
Sector tailwinds
A large or increasing total addressable market
Driven by regulation
Fragmented competitor landscape
High customer demand
Private equity investors need to see clear opportunities for growth. A strong growth story comprises multiple avenues that can deliver value over time as the business scales and professionalises.
Key growth pathways include:
Organic growth – expanding into new geographies, launching product or service lines, improving pricing discipline, or deeper penetration of existing customers are all examples of how a business can grow organically.
Inorganic growth – consolidating fragmented markets or selective acquisitions to increase scale, diversify product/service offerings and enter new markets.
Operational improvement – optimisation of margins from cost efficiencies, system upgrades, supply-chain improvements and broader professionalisation.
The number of levers available and the anticipated impact of each lever are directly correlated to the strength of the investment case. PE sponsors gravitate to businesses where growth can be driven through multiple channels, reducing reliance on any single strategy for value creation.
Institutional capital requires institutional readiness. Private equity investors seek businesses that have the systems, processes and governance needed to scale efficiently. This includes:
Documented processes
Evidence of repeatable workflows
Modern systems (ERP/CRM)
Robust governance
For earlier-stage companies, PE groups are comfortable helping founders professionalise by strengthening these areas. However, if a business has none of these fundamentals at the point of exploring a transaction, it may struggle to materialise institutional interest.
Partnerships with PE rely on alignment between founders, management and investors. PE firms look for teams that share the same level of ambition, buy into the value-creation plan and are therefore often motivated by continued equity participation.
There needs to be mutual agreement on governance, reporting, decision-making, and the pace of change. Founders need to understand what institutional ownership entails and how to operate in that environment.
PE generally look for:
Alignment with management on a value creation plan
Interest in retaining ownership in the business
Founders who understand what institutional ownership entails
A compelling exit pathway is essential for private equity to underwrite any investment. They need confidence that, within 4–7 years, the business will be meaningfully larger, more profitable and strategically positioned to attract a high-quality buyer universe. This typically means operating in a sector with active strategic acquirers, larger financial sponsors or a credible route to public markets. Clear visibility on who will buy the company and why strengthens conviction at entry.
Investability exists on a spectrum. Few companies possess every attribute, and many of the qualities private equity looks for can be strengthened over time. In fact, PE investors often like businesses with areas for improvement, which serve as levers through which they can help drive meaningful value creation.
At Hyndland Partners, we help management teams understand where value is today and how to position a business in advance of an investment process. If you’re considering private equity as the next stage in your growth journey, we would be pleased to guide the discussion.
