UK Private Equity: The Founder's Role

Private Equity deal counts are up, particularly in the midmarket, and we are seeing more deals involving founders and owner-operators. Yet founders can sometimes be a wildcard in value creation. Building on data presented in KPMG’s Private Equity Landscape report, this article provides some insights into how PE firms are making smart decisions on founders.

Entrepreneurs and founders are the heart of the UK’s economy. Yet when buying a privately owned business, many Private Equity managers struggle to decide how to best use the founder within the structure of the new organisation.

On the one hand, there are lots of great reasons to keep a founder. Nobody knows the business better, and founders tend to hold the most important customer relationships and can be critical to driving a smooth transition. In some cases, founders are also the chief designers or developers, embedded into the fabric of the solution being purchased. They can also be key to motivating and engaging employees and stakeholders post-deal.

On the other hand, there are also some good reasons why founders might need to be exited at deal closure. In most cases, the PE acquirer will have plans for the business that may not be a continuation of the status quo. Some founders simply won’t have the right capabilities to drive the business into this new phase. Others may decide that they don’t like the new direction and become a point of tension in the organisation. Just as much as a founder can be a motivator, they can also be a disruptor.

Chau Woeste

Partner, Deal Advisory, People in M&A

KPMG in the UK

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Founders at the table

According to KPMG’s recent Private Equity Landscape report, total PE-led deal count was up 4.4 percent in 2024, with mid-market deal volume up 15.5 percent. That suggests that PE dealmakers are increasingly likely to find themselves sitting across the table from founders or owner-operators when making deals. Whether or not to keep the founder can be a complex decision that could materially impact a PE firm’s ability to generate value from the deal.

Our experience suggests that many PE managers tend to lean towards keeping the founder, assuming it’s the best thing for the business. Often those decisions are based on a view that the founder is the beating heart of the business and that any future misalignment can be rectified with incentivisation. The problem is that incentivising founders post-deal isn’t always easy, particularly when they received a significant payout on deal close. And a disgruntled founder can cause significant damage if left to fester in the business.

So what can you do?

At KPMG, our deal professionals have deep experience working deals from the both the buy-side, the sell-side and the human-side (helping buyers navigate the people issues involved in a deal). We’ve seen founders create huge value post-deal, and we’ve seen them destroy it. Based on our experience and view of the market, here are three ways founders and PE dealmakers can make sure they are working together to create value from the start.

Deepen the due diligence.

Use data and analytics to gain an outside-in perspective of your target’s leaders and their capabilities during the due diligence phase. Then match that up with the capabilities required to drive the organisation in the next phase and assess the gaps.
Be clear about the future.

If you are considering keeping the founder or owner, be open and transparent about your future plans for the organisation – including the new governance model and organisational decision-making structure. If you are removing the founder, be clear on the transition plan to give them dignity when exiting.
Help them transition.

A growing number of Private Equity owners are employing leadership coaches and operating partners to help founders and former owners transition into their new roles and understand their new objectives.

Figuring out the founder

As our Private Equity Landscape report notes, we expect to see PE dealmaking activity pick up significantly in 2025, particularly in the mid-market. At the same time, we are seeing an uptick in interest from founders seeking to build their exit strategies. Private Equity leaders will quickly need to figure out an approach to assessing the value of founders.