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BGF explains: Is private equity the best way to fund an M&A growth strategy?

Our ‘BGF explains’ series is aimed at demystifying the world of business funding by explaining the meaning of key financial terms. We aim to cover everything you might want to know, whether or not it’s a service we offer at BGF. Learn more about our offering here.


A merger and acquisition (M&A) strategy can be an effective way to grow a business. The acquisition of multiple different companies – sometimes known as a buy and build strategy – can help you capture greater market share and thereby become more competitive. If done properly, the value of a newly merged business often exceeds the sum of its parts.

If a management team has identified an M&A strategy to stimulate the company’s growth, the next question is how to fund the acquisitions. One option is to work with a private equity firm. Here, we assess the merits of relying on private equity to fund a buy-and-build strategy.

The features of private equity for mergers and acquisitions

Private equity is a method of securing business funding in exchange for an equity share in the company. With these funds, a business can map out its M&A strategy into the future. However, it’s important to understand the motivations of your private equity partner before embarking on the journey together.

Firstly, you should understand what timeline your potential partner has in mind for your M&A strategy. It is important that your interests are aligned. If your partner is eager for a short timeline, but you believe it is better to be more patient, there is the potential for misalignment.

You will also need to make sure your views about potential acquisition targets are broadly in agreement. There may be a balance to be struck between acquisitions that can enable long-term, profitable growth, and acquisitions that maximise value in the short term. It’s important that you and your private equity backer agree on which type of deal to pursue.

You should also understand what role your private equity partner expects to play in restructuring the merged business after any acquisitions have taken place. If you bring on board a majority investor, they may want to play an active role, for instance by reshaping the management structure, streamlining the workforce and taking greater control over finances. While this input can smooth what can be a turbulent transition period, there is also the potential for differences of opinion if you find you do not agree with all the decisions. Some investors are happy to be more “hands off”, and if this is the kind of partner you want, you should make that clear from the start.

When is private equity right for M&A?

Here are some factors to consider if you are seeking private equity backing to fund an M&A strategy:

Investor profile. Not all investors are equal. You need to research thoroughly the type of firm your business is partnering with. For instance, investors with experience in your sector can provide invaluable advice that could help you select and make successful acquisitions. However, as mentioned, much depends on the end goal of the investor and how that aligns with your goals.

Deal type. The type of deals you are aiming to do will help to determine whether private equity funding is suitable. A horizontal merger, which is a merger between two companies at a similar level of the value chain, may be less complex than a vertical acquisition, which involves acquiring a company at a different level of the value chain.

Your attitude to debt. Businesses that don’t want to build up debt but are comfortable with giving away equity are best suited to private equity investment; however, companies with the opposite preferences might want to explore debt financing as an alternative.

BGF helps growth businesses achieve their M&A strategies

BGF is the world’s most active growth investor, averaging around one investment a week. With a balance sheet of £2.5 billion, we invest in every region of the UK and Ireland and across a wide range of sectors.

One of the most popular reasons for seeking funding from BGF is to finance an acquisition strategy. Of the more than 400 businesses we have invested in, more than 75 have used our funding to achieve growth through buying other companies.

We’re a different type of investor, and we can help your growth business make a true success of its M&A strategy.

  • We invest patient capital – forget about hard exit timelines, we want to partner for the long term.
  • We only ever take a minority stake – we believe it’s important for the businesses we invest in to retain control.
  • We are flexible – investments by BGF can be structured as ordinary shares, loan notes or a combination.
  • We typically make initial investments of £1-15 million – and with the opportunity for follow-on funding, we’re here to help you achieve your growth potential.
  • Our Talent Network is here to support you – investment from BGF gives you access to one of the largest groups of board-level non-executives in the UK and Ireland. They support our growing businesses with ad hoc advice, commercial insight and interim leadership.


The information contained in this article is for general information and use. It does not constitute any form of advice and is not intended to be relied upon in making any investment decision. Independent advice should always be sought as to whether a particular transaction is suitable having regard to your personal and financial circumstances.


BGF Insights 07.06.2021