As we have discussed before, according to a number of sources, equity firms are currently sitting on a significant amount of capital. For example, based on Pitchbook’s 1st Quarter 2012 Private Equity Update, at the end of last year, the cumulative total overhang was at $425 billion. You can see this graphically below.
Pitchbook is one of the leading analytical firms tracking the private equity and venture capital industry. As you can see, because of the significant fund raising in 2007 and 2008 coupled with the lack of investing in the recessionary year of 2009 and the following recovery, the overhang (also known as dry powder) has remained very high.
According to other analysts, it is actually higher than Pitchbook’s estimate. For example, the Turnaround Management Association’s online publication pegs the overhang at approximately $477 billion. The author of the article on the TMA website,Ted Koenig of Monroe Capital LLC, went on to say:
“The current overhang is unsustainable, given the nature of private-equity fund structures; firms lose the ability to invest this capital once their investment period runs out. At today’s deal flow pace, it would take around five years to invest the current overhang, which means that private-equity firms must start investing now at a much higher rate if they want to invest their full fund (and collect the fees and carry on those remaining commitments). These private-equity firms will try their hardest to put this capital to use, which should result in a plethora of M&A activity.”
I have highlighted the end of that section to emphasize a point: During the next 12-24 months, equity firms are going to be quite active in looking for and acquiring companies.
Since the appetite for mega deals has cooled, what do you think they will be looking for? Primarily this: add-on companies to existing platforms. Keep in mind that many of these platform companies were acquired prior to the Great Recession hitting in 2009. As we saw a few days ago, add-ons as a percentage of deals closed grew to 50% of all deals equity firms invested in last year. And according to Pitchbook’s latest data, in the first quarter of this year, add-ons broke the 50% barrier for the first time ever, reaching 54% of all deals that they closed.
This is great news if you own a business today. If you are profitable (and we assume you must be if you survived the recession) and growing and are in an industry that has active equity firms, you could be a prime target for a professional investment firm.
The only caveat I would give you is that since these buyers look at hundreds (in some cases thousands) of deals every year, getting your investment opportunity in front of the right person, in the proper format, at an appropriate investment firm is critical. To do this effectively, you will most likely need professional help.
If you would like to learn more about how to approach these types of buyers, I would suggest that your first step would be attending one of Generational Equity’s educational M&A workshops. We hold these around the country because we are dedicated to introducing business owners to the vital concept of how and when to exit your business for the most profit.
For many of you, nearly your entire net worth is tied up in your business. You owe it to yourself, your family members, and your employees to ensure that you exit when you want to, not when external circumstances force you to.
If you would like to find out if the conference would be a good fit for your business, one of our M&A professionals can contact you at your convenience.
The information we learn from customers helps us personalize and continually improve your experience at gencm.com. Here are the types of information we gather.
Information You Give Us: 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. Our computer system protects personal information using advanced firewall technology.
Information from Other Sources: 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 Capital Markets LLC 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 Capital Markets, L.L.C. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Capital Markets LLC at is 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 IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES, SO THE ABOVE EXCLUSION MAY NOT APPLY TO YOU.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Capital Markets may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Capital Markets 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 Capital Markets will be deemed NOT to be confidential. By sending Generational Capital Markets any information or material, you grant Generational Capital Markets an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Capital Markets is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Information Generational Capital Markets 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 Capital Markets intends to announce such products, programs or services in your country. Consult a Generational Capital Markets representative for information regarding the products, programs and services which may be available to you.
Generational Capital Markets makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Capital Markets web site, please understand that it is independent from Generational Capital Markets, and that Generational Capital Markets has no control over the content on that web site. In addition, a link to a non-Generational Capital Markets web site does not mean that Generational Capital Markets 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 Capital Markets 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.
Furthermore, all information contained within this website is the property of Generational Capital Markets.
Honored to win Investment Banking Firm of the Year 2 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.