Private Equity Activity

By Generational Equity


Most business owners that we meet at our M&A conferences are often surprised to hear that private equity firms are interested in middle-market sized deals.  Based on news reports that focus on billion dollar deals, most owners of privately held companies assume that equity firms only look at very large companies. Actually, nothing could be further from the truth.

Recently Pitchbook, the leading research and analytical firm focusing on the private equity community released its fourth quarter Private Equity Breakdown. Their data is always quite interesting, and since all they do is focus on the private equity community their info is quite detailed and accurate.  

On a quarterly basis they survey equity firms and their completed deals. They analyze this data in a variety of ways to evaluate equity firm activity. On a regular basis their data indicates that not surprisingly, equity firms are quite interested in middle-market sized deals. This can be seen in the following chart:

As shown, through the third quarter of this year, approximately 40% of all deals closed by equity firms were valued below $50 million dollars. Nearly 75% of the companies acquired by equity firms have been valued below $250 million.  

When we share this data with owners of privately held companies, they tend to be quite surprised. The reality is the day of the billion dollar deal is long gone. Although these huge deals will still occur, equity firms have learned the hard way that it is simply less risky, and the returns are greater, by making multiple acquisitions of smaller companies rather than try to hit a homerun with a billion dollar deal. In addition, financing for larger deals has become more difficult to obtain in our post financial crisis environment. 

All of these factors are causing more and more equity firms to move “down- stream” into the realm of the middle-market and smaller deals. 

Equity Firms as Targets

As you consider the sale of your company, be sure to include this group in your acquisition plans. The challenge you will face is ensuring that you are able to get the attention of an equity firm when you go to market. 

These professional buyers literally look at hundreds of acquisition opportunities. The amount of time they spend reviewing each one is dependent on the quality of information and the format it is presented in.  

For even more information on this topic, I would encourage you to attend one of Generational Equity’s M&A conferences. While there you will be able to learn more about how equity firms operate, what they are looking for, and how to get their attention when you market your company.  

Most importantly, never make the assumption that any buyer group will not have interest in your firm. Chances are good there is a buyer out there for your company, you just need to determine who and how to attract their interest. 

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