The £1–5m No-Man’s-Land: Why UK SMEs Get Stuck, Undervalued and Slightly Insulted

By Matthew Brittain

There is a peculiar place in UK business life where optimism goes to sulk and advisers start clearing their throats. It is inhabited by companies that are profitable, respectable, often exhausting to run, and worth somewhere between one and five million pounds. These businesses are too big to be dismissed as hobbies and too small to be taken seriously by private equity. They are the managerial equivalent of being too old for the kids’ menu but not quite trusted with the wine list.

Founders in this zone tend to feel mildly offended by everyone. Lifestyle buyers think they are complicated. Private equity thinks they are amateur. Banks think they are risky. Advisers think they are time-consuming. And the founders themselves think, quite reasonably, that if they have survived twenty years of payroll, HMRC, staff dramas and the odd near-death experience, they deserve a better exit than polite indifference.

This is the £1–5m no-man’s-land of UK M&A, and it is far more crowded than anyone likes to admit.

The first thing to say is that nothing is wrong with these businesses. In fact, many are excellent. They have loyal customers, recurring revenue, decent margins and founders who know exactly how everything works. The problem is not quality. The problem is category. UK M&A, like British society, loves neat boxes. Microbusinesses get sold to mates or family. £10m-plus companies get glossy decks, multiple bidders and serious money. The middle is awkward. It requires judgement rather than templates, and that makes everyone nervous.

Founders are often told, in soothing voices, that their business is “too small for private equity but too big for a trade buyer”. This is nonsense, but it is comforting nonsense because it implies inevitability rather than a failure of imagination. What it really means is that the usual routes to market do not fit neatly, and that most advisers would rather walk around the problem than through it.

The irony is that this is precisely the size bracket where the most value is quietly created and quietly destroyed.

At £1–5m enterprise value, the business is usually still founder-centric. The founder knows the clients, the staff, the systems and the shortcuts. EBITDA exists, but it exists with caveats. Adjustments are plentiful and explanations lengthy. The business works because the founder is there, not because the processes are beautiful. This is not a criticism. It is simply how SMEs function in real life.

Private equity, meanwhile, wants a different story. It wants scale, replicability, management layers and the comforting illusion that the business would carry on quite happily if the founder were abducted by aliens. When those things are absent, PE firms start muttering about “platform risk” and “key-man dependency”, which are polite ways of saying “this makes us uncomfortable”.

Lifestyle buyers, on the other hand, are often overwhelmed. They may be successful operators themselves, but a £3m acquisition with staff, leases, regulatory obligations and a demanding founder is not a relaxing retirement project. They want something they can understand in a weekend, not something that requires a six-month transition and a mild personality transplant.

And so the business sits. Too good to close, too awkward to sell, steadily generating cash while its owner grows more tired and more resentful that the market does not appreciate what they have built.

Valuation is where the no-man’s-land becomes most visible. Founders are often told that their business is worth “three to four times EBITDA”, delivered in the tone one might use to explain the rules of Monopoly. This multiple is rarely interrogated. It floats around the SME world like folklore, repeated by brokers, accountants and well-meaning friends.

The trouble is that multiples are not rewards for effort. They are prices paid for certainty. At £1–5m, certainty is partial at best. Financial information is good but not pristine. Management accounts exist but may rely on heroic assumptions. Customers are loyal but concentrated. Contracts are informal. And the founder, whether they like it or not, is the glue.

Buyers price this uncertainty in quietly. They do it through lower multiples, earn-outs, deferred consideration and creative structuring. Sellers experience this as an insult. Buyers experience it as prudence. Advisers often experience it as an awkward meeting they would prefer to avoid.

This is where many deals begin to wobble. The founder feels undervalued. The buyer feels misunderstood. Both are correct.

The UK adds its own flavour to this discomfort. HMRC looms large, not because it is always a problem, but because it is unpredictable. Entrepreneurs’ Relief (or Business Asset Disposal Relief, to use its less comforting name) is assumed until it suddenly isn’t. Historical tax planning looks clever until it doesn’t. A casual loan account becomes a talking point. None of this is fatal, but it slows things down and feeds the sense that the business is messier than advertised.

Banks, too, are cautious in this bracket. They like assets, predictability and ratios that behave themselves. Founder-led SMEs have a habit of breaking all three rules in small but irritating ways. The lender’s credit committee does not care that the founder has never missed payroll. It cares about DSCR, covenants and whether the numbers behave on paper. When they do not, leverage shrinks and equity cheques need to grow.

This is often the moment when sellers realise that the buyer they imagined does not exist. Or rather, exists only on LinkedIn.

What makes this particularly frustrating is that many £1–5m businesses are exactly what the UK economy needs more of: resilient, profitable, employment-creating enterprises that have survived multiple cycles. They are not fashionable, but they are solid. The problem is not their substance. It is the way M&A narratives are written.

Most M&A commentary assumes a straight line from growth to exit, with a brief cameo from private equity and a satisfying conclusion. Real life is lumpier. Businesses plateau. Founders burn out. Markets mature. Growth becomes harder. None of this means failure. It simply means that the business has entered adulthood.

The no-man’s-land is where adult businesses live.

One of the great myths is that growing out of this zone is simply a matter of “scaling”. Scale, like synergy, is a word that sounds positive while meaning very little on its own. Scaling requires capital, management, systems and a tolerance for chaos. Many founders do not want this. They want relief, optionality and perhaps a sensible partial exit. They want to de-risk without detonating the culture they built.

Traditional advisers struggle with this nuance. Brokers want a clean sale. Accountants want tax efficiency. Lawyers want certainty. None of these are wrong, but none address the central problem: how to create liquidity and continuity in a business that does not fit the standard mould.

This is why so many £1–5m businesses end up with deals that look oddly shaped. Partial sales. Minority investments. Structured exits that unfold over years rather than months. Earn-outs that are really delayed purchase price wearing a disguise. These structures are not failures. They are adaptations.

The trouble is that they are often approached apologetically, as if the seller has somehow fallen short. In reality, these structures reflect the truth of the asset. The founder is still important. The business still needs stewardship. The risk still needs sharing. Pretending otherwise does not make it go away.

What is genuinely destructive is the insistence on applying large-deal thinking to small-deal reality. When advisers push for processes, timelines and documentation that the business cannot support, deals slow, costs rise and goodwill evaporates. Sellers begin to wonder whether the cure is worse than the disease.

There is also a psychological trap. Founders in this bracket often compare themselves upwards. They read about eight-figure exits and wonder what they did wrong. The answer is usually “nothing”. They built a different kind of business, in a different context, with different goals. Measuring it against unicorn fantasies is a reliable route to dissatisfaction.

At the same time, there is real opportunity here, particularly for buyers who understand what they are looking at. £1–5m businesses can be exceptional acquisition targets precisely because they are overlooked. They often have operational slack that can be tightened. They have pricing power that has never been tested. They have founders who are willing to stay involved if treated sensibly. They are, in short, improvable.

The buyers who succeed in this space tend not to be the loudest. They are patient, pragmatic and willing to structure deals that reflect reality rather than aspiration. They understand that control is less important than alignment, at least initially. They accept that integration is a process, not an event.

Sellers who succeed, meanwhile, are those who reframe the question. Instead of asking “why won’t anyone pay me what I’m worth?”, they ask “what does my business need to become investable on its own terms?”. Sometimes the answer is governance. Sometimes it is a second-tier management hire. Sometimes it is simply better articulation of how money is actually made.

This is not about polishing for private equity. It is about making the business legible to someone who was not there when it was built.

The uncomfortable truth is that many £1–5m businesses are sold, eventually, not because the owner planned a perfect exit, but because the owner ran out of energy. The deal happens when pain exceeds inertia. This is why timing is so often sub-optimal and why sellers later feel they left money on the table.

The tragedy is that this is avoidable. With the right structuring, positioning and buyer selection, businesses in this bracket can achieve excellent outcomes. Not always glamorous ones, but fair, sustainable and dignified ones.

This requires advisers who are comfortable in the grey areas. Advisers who are not embarrassed by complexity. Advisers who understand that value is not just a number, but a relationship between risk, trust and time.

How Lexis Capital Group can assist

Lexis Capital Group specialises in precisely this no-man’s-land. We work with founders and acquirers operating in the £1–5m enterprise value range who recognise that their situation does not fit a standard template.

Rather than forcing businesses into a private equity or lifestyle-buyer narrative, we focus on structuring transactions that reflect operational reality. This may involve partial exits, staged acquisitions, minority investments, earn-outs designed to work rather than merely exist, or buyer partnerships that prioritise continuity as well as liquidity.

We assist sellers in making their businesses legible to the right kind of buyer without stripping out what makes them work. That includes addressing founder dependency honestly, improving financial clarity where it matters, and positioning the business around resilience rather than hype.

For buyers, we source and assess opportunities that sit below the radar, where value is created through understanding rather than financial engineering alone. We help structure deals that balance risk sensibly between parties and avoid the false certainty that so often destroys goodwill post-completion.

Lexis Capital Group is not right for founders seeking a fast, glossy auction at any cost, nor for buyers looking for formulaic roll-ups without engagement. We work best where complexity exists, motivations are mixed, and judgement matters.

In the £1–5m no-man’s-land, that is very often the difference between a deal that merely completes and one that actually works.