Built to Be Bought

There are two ways to increase the value of a business during an investment. One is to improve the numbers. The other is to improve the business. They often move together, but they are not the same thing, and the difference tends to reveal itself at exit.

For much of the last decade, the first route was often enough. Cheap debt and rising valuations meant a business could be sold for a higher multiple than it was bought for, regardless of how much had really changed underneath. Research from Bain & Company found that the average buyout fund relied largely on multiple expansion and revenue growth over that period, with margin improvement playing only a minor role. Sustained higher interest rates have since undercut multiple expansion as a dependable source of returns. Increasingly, value has to be earned through genuine operational improvement, which is precisely what the top performing funds were already doing.

What a buyer is really buying

When a buyer looks at a business, they are not simply buying last year's earnings. They are buying confidence that those earnings will continue, and grow, under new ownership. Every part of their diligence is an attempt to answer one question: what happens when the current owners walk away?

The answer is rarely found in the financial model. It is found in the strength of the business itself. Buyers look for evidence that strategy and operations pull in the same direction, so that ambition at board level is matched by the capability to deliver it on the ground. They ask whether leadership runs deeper than the top team, or whether performance depends on a handful of individuals who may not stay. They examine governance, performance management and decision making to judge whether the business can absorb change without losing its footing. And they look for growth that is repeatable rather than a one off, an engine that still has room to run.

Where those qualities are present, buyers compete and pay accordingly. Where they are missing, the gap shows up as a lower price, tougher terms or a deal that does not happen at all. With exits taking longer and competitive auctions becoming less common, that distinction matters more than ever.

Resilience cannot be added at the end

The temptation is to treat exit readiness as a final phase: tidy the data, polish the equity story, appoint advisers. That work matters, but it cannot create what was never built. Resilience is the product of decisions made across the whole life of an investment.

The evidence supports starting early. EY's 2026 Global Private Equity Exit Readiness Study found that 86% of private equity firms believe exit preparation improved their valuations, with the strongest gains reported by those who began 12 to 24 months before a sale. Those that started less than six months out saw noticeably weaker results. Tellingly, when management teams were asked what they would do differently, the most common answer was to prepare the management team itself better.

Seen this way, value creation is not a sequence of separate stages but one continuous effort. The questions asked before the deal shape the plan. The first 90 days set its pace. The years that follow are about strengthening the business so that the story told at exit is not a promise but a track record.

Building value that lasts

In practice, that means investing in more than short term performance. It means building commercial and organisational capability that will still be there once the current plan is complete. It means developing leaders beneath the top team and putting succession plans in place for every critical role. And it means embedding the governance and performance disciplines that allow a business to keep improving without constant intervention from its owners.

Westinghouse Electric offers a striking example. Brookfield acquired the business out of bankruptcy in 2018, appointed a new management team, reorganised the company, streamlined its product and service lines, strengthened its global supply chain and invested in new technology. Profitability nearly doubled under its ownership, and in 2022 Brookfield agreed a sale valuing the business at around $8 billion, expecting a return of roughly six times its invested capital. The financial outcome was exceptional, but it rested on a business that had been fundamentally strengthened, not simply repackaged.

Stronger at exit than at entry

The real test of value creation is not the return on a single deal. It is whether the business is genuinely stronger at exit than it was at entry: better led, more capable and more resilient. Get that right and the valuation tends to follow. A business built to thrive without its investors is exactly the kind of business the next investor wants to own.

Written by Will Hartley