7 Things Private Equity Firms Look For in Companies

In order to generate strong returns for their investors, private equity firms conduct thorough due diligence before adding a company to their portfolio. With most deals ranging between $50 million and $1 billion, PE investors want to see metrics that show a business can scale, increase in value, and provide a profitable exit within a defined period.

While each PE firm has a unique investment philosophy, they usually buy a majority position in undervalued, overlooked, or inefficient companies with strong sales and profit growth potential. The PE firm then leverages their resources and networks to help that company achieve its potential, and after a holding period (between 3-7 years, on average), they will resell it or take it public for a profit.

Over the last two decades, Consero has helped hundreds of private equity firms unlock value from their portcos. We’ve observed the following common characteristics that private equity firms look for in companies.

1. Strong Management Teams

Private equity firms invest in businesses, not to run them, but to scale them. They rely on the management team at portfolio companies (“portcos”) to execute strategy and drive operational improvements.

Investors look for proven leaders who can:

• Adapt the business model to evolving market needs
• Optimize operations and cost structures to improve efficiency, profitability, and maximize margins
• Drive revenue growth through new customers, partnerships, acquisitions, and market expansion

Investors want confidence that management can effectively allocate capital and make data-driven decisions. 

A leadership team who can articulate financial performance, forecast future growth, and show a clear understanding of key performance drivers strengthens a company’s appeal to PE firms.

2. Clear and Achievable Business Plans

Private equity firms invest in companies with a solid vision for growth. A strong business plan should outline:

• Realistic revenue and profit growth projections, backed by data
• A clear value proposition that differentiates the company from competitors
• A roadmap for short- and long-term growth, including risk mitigation strategies

Firms prioritize businesses with realistic yet ambitious strategies. Businesses with demonstrable operational efficiencies, market traction, or customer loyalty stand out in the investment process.

Companies with structured financial planning also present a more compelling case for investment, as they reduce uncertainty and position the business as a reliable opportunity.

3. Scalable Growth Potential

Growth potential is a core investment driver. To generate strong returns, private equity firms focus on businesses with scalable revenue models (such as recurring revenue SaaS businesses) and clear paths to expansion in sales and profitability.

PE firms evaluate:

• Industry trends and market size that support long-term growth
• Sustainable revenue models
• Potential for organic expansion or acquisitions
• Operations that can support increased demand
• Expanding market share in a growing industry

PE firms leverage their resources and networks to accelerate this growth, making businesses that can efficiently scale while maintaining strong profit margins highly attractive.

A business’s ability to scale will also depend on the strength of its financial infrastructure. Companies that establish structured financial operations early can better handle acquisitions, increased market share, and evolving investor expectations.

4. Competitive Advantages and Market Position

PE firms look for companies with a strong competitive position and market advantages.

Investors look for:

• Unique product or service offerings, business models, or proprietary technology that create barriers to entry for competitors
• Customer loyalty and pricing power that enhance revenue stability and drive long-term profitability
• Strong brand positioning in the industry

A business with a sustainable competitive advantage is more likely to deliver consistent returns and attract potential buyers during an exit. 

Companies that have already carved out a defensible market position are more likely to be resilient to changing market conditions and contribute to long-term value creation.

5. Exit Strategy and Value Creation Potential

PE firms also want to invest in opportunities that offer a defined exit timeline to realize returns, typically three to seven years.

Investors want to see:

• A clear path to liquidity through an IPO, strategic sale, or secondary buyout
• Strong governance, with PE firms often seeking board representation 
• Financial controls to support due diligence and valuation growth
• Strategies for reducing operational inefficiencies and improving EBITDA margins

Businesses that align with private equity firms’ exit strategies and demonstrate value creation potential are the most attractive investment opportunities.

Companies that proactively structure their operations for a future sale, including financial transparency and operational scalability, position themselves favorably for acquisition.

6. Reliable Cash Flows and Low Capital Expenditures

Private equity firms typically use leveraged buyouts (LBOs) to acquire companies, which means they look for businesses with steady, predictable cash flows that can support debt payments.

Investors evaluate:

• Consistent revenue streams with low volatility
• A history of profitability and stable margins
• Limited capital expenditure requirements to ensure strong free cash flow

Companies that require heavy reinvestment before reaching profitability may be less attractive, as PE firms seek businesses that can generate immediate returns.

7. Leveraging Technology for Efficiency

As the business landscape evolves, PE firms are increasingly looking for companies that leverage technology to drive efficiency and adaptability.

Investors assess:

• Use of automation, data analytics, and digital tools to enhance operations
• The company’s ability to integrate emerging technologies to stay competitive
• A culture of innovation that supports long-term sustainability.

Businesses that use technology to improve operations, reduce costs, and scale effectively present lower investment risks and higher return potential.

Positioning Your Company for Private Equity Investment

While no investment is risk-free, private equity firms look to add portfolio companies with traits that instill confidence in their potential for value creation and profitable exits. Companies with strong leadership, scalable growth, defensible market positions, and a clear path to an exit align with these investment objectives.

By building business models that support rapid expansion and operational efficiency, companies can attract private equity investment and maximize valuation upon exit.

Once funding is received, sustainable financial infrastructure is the key to unlocking and realizing the business’s growth potential. With flexible solutions for any stage of growth, Consero has helped hundreds of PE-backed companies operationalize their finance functions to optimize cash flow, streamline financial reporting, and support acquisition strategies.

Request a consultation to learn how we can help your business reach the next level.