For most of the last fifteen years, a private equity firm could buy a business, hold it, and sell it for more without changing much about how it actually ran. Cheap debt did some of the work. Rising valuations did the rest. You could improve the multiple without improving the operation.
That route has closed. Adviser data this year is blunt about it. Multiple expansion and leverage are no longer reliable drivers of return, and margin improvement through operational change has become the primary lever (KPMG UK Private Equity Landscape 2026). The proportion of EBITDA growth attributed to margin improvement in recently exited European deals rose to around 51 per cent in 2025, up from roughly 21.5 per cent in deals struck before 2023 (KPMG, citing exit analysis, 2026). The money is now made by running the business better, not by buying and selling it cleverly.
If you run a business that an investor owns, or one they are circling, this is not an abstract shift in the deal market. It changes what gets demanded of you, and how soon.
The pressure has moved from the deal model to the operating model
Here is the part the headlines miss. The investor has reached the conclusion that operational performance now has to carry the return. The firm does not have the people to deliver it.
Survey data puts only about 18 per cent of PE leaders in operating-partner roles, and two-thirds of those are stretched across five or more portfolio companies at once (EY Private Equity Pulse Q1 2026). One analysis suggests operational headcount inside PE firms may need to roughly triple to capture the value now on the table (EY, 2026). For the first time, digitalisation and AI rank above leverage as the most important expected return driver, at 36 per cent against 32 per cent (PwC Private Equity Trend Report 2026).
Read those numbers together and the conclusion is uncomfortable for the management team. The investor expects the operation to deliver the return. The investor cannot staff the work of making it deliver. So the work lands where it was always going to land. It lands on you.
I have been the person that work lands on. When I joined a fibre broadband start-up to build its operations from scratch, the investors were not asking for a clever financial structure. They were asking whether the thing could be run at all, at the pace they were funding. Later, leading a service delivery overhaul during a merger in the broadband sector, the question was the same in a different shape: could a business that grew fast actually deliver to a standard a buyer would pay for. First-time installation success moved from roughly 88 per cent to above 99 per cent, and fault repair came down from over a week to about a day. None of that came from the deal. It came from the operating system underneath the deal.
What an operating system actually is, and why it is now the asset
Most businesses do not run on a system. They run on a few capable people who hold the thing together by knowing where the bodies are buried. That works until it does not. It breaks the moment those people are stretched, leave, or are asked to deliver at twice the previous pace.
An operating system is the opposite of that. It is the explicit set of structures, routines, standards and controls that make execution predictable regardless of who is in the room on a given day. It is the difference between a business that performs because of who is present and a business that performs because of how it is built. The first is heroics. The second is a system. Investors used to be able to ignore the difference, because the multiple covered it. They cannot ignore it now, because the multiple is the thing that disappeared.
This is why the operating model has quietly become the asset. A business held together by heroics looks fine in a good year and falls over in a hard one. A business with a real operating system holds its margin when demand softens, integrates a bolt-on without losing a quarter, and survives the departure of a key manager. In a market where the return has to come from performance rather than valuation, that resilience is no longer a nice-to-have. It is the thing being bought and sold.
There is a principle here that has nothing to do with private equity and everything to do with why so many improvement programmes waste money. Improving anything other than the binding constraint produces no gain in the result. If the constraint on a portfolio company is that delivery depends on three exhausted people, then a new dashboard, a new brand, or a new sales push does not move the number. It just adds load to the constraint. The investor who understands this stops asking for more activity and starts asking what is actually holding the operation together. The honest answer, in most businesses, is named individuals rather than a system.
Why the timing makes this sharper
This is not a slow-moving structural trend that you can watch from a distance. The exit window is opening. Trade sales were roughly 60 per cent of European PE exits in 2025, the highest share in a decade, and the average holding period has stretched to about 6.6 years (KPMG / EY, 2026). Firms are expected to move on exits through 2026 to return capital and raise their next funds (PwC 2026 outlook). A business that has been held for six years is a business an investor wants to sell soon.
That compresses the timeline for any management team sitting inside a portfolio company. The diligence that a buyer runs in 2026 is deeper and more data-driven than it was a few years ago, and it is aimed squarely at operational quality. A buyer is no longer content to be told the business performs well. They want to see why it performs, which is another way of asking whether the performance survives the people who currently produce it.
The same pattern is visible well beyond private equity, which is part of why I trust it. Fibre operators spent years competing on premises passed and are now consolidating because the build phase rewarded a number that did not decide survival. Construction sits at the top of the insolvency table, around 17 per cent of all UK cases, with many firms locked into fixed-price contracts on margins of 2 to 4 per cent, where a single payment delay tips them into distress (BCIS, June 2026; Top Service, June 2026). In each case the visible number, the premises, the price, the contract value, was never the thing that determined who lasted. The operating discipline underneath it was. Private equity has simply arrived at the same realisation through the maths of returns.
What to look for in your own operation
If you run a business an investor owns, or one heading toward a sale, the useful question is not whether your numbers look good this quarter. It is whether they would survive scrutiny aimed at how they are produced. A few things are worth checking honestly.
Ask who actually holds the operation together. If you can name the three or four people without whom delivery would stall, you have located your constraint, and it is not a system. It is a dependency. That dependency is exactly what a serious buyer will price down, because they know it does not transfer.
Ask what happens to your margin when demand softens. A business that protects margin through a downturn is running on standards and controls. A business whose margin evaporates the moment volume drops is running on goodwill and overtime. The first reads as resilience in diligence. The second reads as risk.
Ask whether your strategy reaches the diary. Most businesses have clear goals on a slide and chaos in the calendar. If the gap between what the leadership team intends and what the front line actually does each day is wide, no amount of AI or reporting closes it. The work of closing it is the work of building an operating system, and it is precisely the work the investor now needs done but cannot staff.
None of this is fixed with a tool. AI raises the stakes on every one of these weaknesses rather than removing them. One in six UK employers now expect AI to reduce headcount within a year, yet most firms already using it report no measured impact so far (British Chambers of Commerce, 2026). The reason is simple. A weak operating model does not become strong because you bolted software onto it. It becomes a weak operating model that runs faster. The decision about who is accountable, and how the work is controlled, is a human one, and it sits with you.
The window is the point
The shift in how private equity makes money has handed management teams a problem and, if they move early, an advantage. The problem is that the operating model is now the asset under examination, and the people who would normally help build it are spread too thin to arrive in time. The advantage is that very few businesses have done this work before they were forced to, which means the ones that do it early look exceptional in a room full of businesses that did not.
The build was always going to be the easy part. The question that decides value now is whether the thing can be run without the heroics that built it. That question used to wait until the sale. It does not wait any more.
References
- KPMG. “UK Private Equity Landscape 2026: Value creation.” 2026. kpmg.com
- EY. “Private Equity Pulse: key takeaways from Q1 2026.” 29 April 2026. ey.com
- PwC. “Private Equity Trend Report 2026.” 4 May 2026. pwc.de
- BCIS. “Latest construction firm insolvency figures.” 28 May 2026. bcis.co.uk
- Top Service. “Navigating the Structural Reset: Four Shift Pressures Every Construction Credit Manager Must Face in 2026.” 22 May 2026. top-service.co.uk
- British Chambers of Commerce. “Britain’s Workforce Is Not Ready for What Is Coming.” 20 April 2026. britishchambers.org.uk
