Private equity has certainly evolved over the past 30 years and even more so after the Great Recession in 2008. Bain, one of the leading consulting partners to the private equity (PE) industry, confirmed this recently with the release of its Global Private Equity Spotlight for 2018.
As always, Bain’s research is detailed and well analyzed. Some of their key findings include the new reality that add-ons as a percentage of all deals closed by PE firms globally in 2017 reached 50%, an all-time high.
This is great news for owners of lower middle-market companies (generally companies with revenue below $100 million).
Add-ons tend to be smaller acquisitions because the PE firm is “bolting” the newly acquired business onto an existing platform company. Equity firms have learned that the best returns come when multiple smaller companies are “added on” to a much larger existing holding.
This strategy allows them to benefit from economies of scale and also tap into the knowledge, contacts, and experienced employee base of multiple companies rather than taking the risk of a single large investment and then growing it organically.
Secondly, the amount of dry powder available for investing is at an all-time high (especially for those firms specializing in buyouts):
And not surprisingly, the number of private equity firms has likewise reached record levels:
Again, this is significant news for owners of privately held middle market companies.
Because of increased competition to acquire well run businesses.
You see, capital that is committed to private equity firms by their limited partners is given to be used for one purpose: acquisitions. Most funds have a 3-year to 5-year window in which to make their investments, otherwise the capital must be returned to the investor (an action that PE firms would rather avoid).
As you can see from the second graph, over the last three years alone, buyout firms have raised over $150 billion. Much of that will need to be invested in the next couple of years, which will continue to drive our current seller’s market.
Also, in the third graph, notice how the number of active buyout firms has grown exponentially since 1990. Again, this also implies new and growing competition for acquisitions, as these firms would not be forming without this goal in mind.
Thanks to Bain and their detailed research, we can be assured that there is more competition than ever before for privately held, middle market companies who have prepared themselves for the acquisition process.
How does this preparation process begin? By gaining as much knowledge as you can about exit planning and how to find optimal investors for your business from not only among PE firms but also corporate strategics, family offices, offshore buyers, individual investors and a myriad of other sources.
A great place to start your education begins with attending a Generational Equity exit planning conference. Held regularly throughout North America, these meetings are highly educational and completely complimentary. All that is required of you is that you take good notes and ask great questions. Use the following links to learn more:
And special thanks to our friends at Bain for producing a highly informative overview of the PE industry today. If you would like to see the entire report, use the following link: Global Private Equity Report 2018.
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2018 Generational Equity, LLC. All Rights Reserved.
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
Generational Capital Markets, Inc.’s affiliates are all part of one corporate family, they work with one another and may work together to provide services to you. The sharing of your information among affiliates enables Generational Capital Markets to serve you more efficiently and makes it more convenient for you to do business with Generational Group. Generational Capital Markets is permitted by law to share information with its affiliates. All of our affiliates follow similar privacy policies.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Generational Capital Markets, Inc. ("GCM"), member FINRA/SIPC, is wholly owned by Generational Capital, LLC ("GC"). Both GCM and GC are affiliated with Generational Equity, LLC; and all part of the Generational Group of companies. This website is solely for general informational purposes and is not guaranteed by us to be accurate and complete statements of fact and should not be relied on as such. Opinions in this website constitute the current judgment of the author as of the date and its last update. The content of this website does not necessarily reflect the opinions of GCM, and is subject to change without notice, and GCM is not under any obligation to update or keep current any information contained herein. This website does not constitute any personal recommendations and does not take into account the specific investment objectives, financial situation or particular needs of the reader. The information contained in this website should not be construed as an offer, or a solicitation of an offer, to buy or sell any securities or other financial investments. The information presented should not and cannot be viewed as an indicator of future performance. To the extent permitted by law, GCM does not accept any liability arising from the use or retransmission of the information in this website.
Furthermore, all information contained within this website is the property of Generational Group.
Honored to win Investment Banking Firm of the Year 3 years running.
Over 50 awards and counting.
Sign up to receive regular email updates, industry-leading insights and details on complimentary M&A executive conferences in your area from our award-winning team
Success, you have been added to our list.