Private Equity Remains Active – No Slowing Down!

By Generational Equity


According to recent analysis by Pitchbook, Private Equity acquisition activity remained quite strong in 2020 (despite a lull in the second quarter). In fact, once the data is finalized, a record number of PE deals may have closed in 2020.

You can see this information graphically in the following Pitchbook chart from their Q1 PE Breakdown:

Private Equity Deal Activity

As shown, despite a once-in-a-century pandemic, PE firms were quite bullish on growing in 2020 via acquisitions. Comparing 2011 to 2020 (estimated) is really remarkable. There were nearly 90% more deals closed in 2020 compared to 2011. In 2011, we were in our second year of economic recovery following the Great Recession.

And this extreme hyper-activity has continued in 2021. If you annualize the first quarter estimated deal count, U.S. PE firms are on pace to close over 7K transactions this year!

Despite the economic impact the pandemic had in mid-2020, PE firms were quite active at the end of the year (and so far in 2021), closing a record number of transactions in order to position their portfolio companies for tremendous potential growth post-pandemic.

This can be clearly seen in the add-on data from Pitchbook:

Private Equity Deals

As you can see, add-ons, as a percentage of all PE transactions, actually grew in 2020 (and this has continued in 2021).

For those of you unfamiliar with this term, an add-on is an acquisition a PE firm makes that is “added on” (or bolted on) to one of its holding/portfolio companies. It is a strategy employed to efficiently and effectively allow an initial investment by a PE firm in an industry to grow strategically (and profitably) by adding additional smaller (sometimes much smaller) companies to the platform over time.

We have analyzed the impact of add-ons, and their implication for owners of privately held companies, several times over the years. To learn more, please use the following links:

Finally, returning to the Pitchbook Q1 data, we once again are struck by the fact that, contrary to what many business owners believe, PE firms love to acquire smaller companies:

Private Equity Deal Size

As the Pitchbook data clearly indicates, in 2020 well over 70% of all PE transactions in the U.S. were valued below $100 million (and this has nearly stayed the same so far in 2021). 

Again, this is reflective of the popular add-on strategy discussed earlier and indicates that smaller companies are used quite often as pieces of the additive pie to grow platform companies.

So, for those of you that continually read in the business press about billion-dollar deals, look again at the chart above. So far in 2021, those deals represent less than 5% of all PE transactions!

The implications for business owners of the info from Pitchbook are significant. As we enter into anticipated significant economic recovery in late 2021 and into 2022, it is safe to assume that PE firms will only become more frenzied in their acquisition strategies. Not only do they need to invest billions of investor capital over the next few years, they also need to position their platform companies for an eventual transition to new ownership by adding onto them.

All of which is great news for prepared, informed, knowledgeable owners of small to medium-sized businesses. Time and space do not allow us to examine how you can benefit from an active PE group, but we can help beyond this Insight post.

If you set aside some time to attend a Generational Growth and Exit Planning Conference, you will come away with significantly more information about how to effectively grow and eventually exit your business than you have now. 

Our Conference Leaders are experienced serial entrepreneurs themselves and can guide you through your initial growth into how and when to exit for optimal value from your company. To learn more about our award-winning conferences and team, use the following links:

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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