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Record Year for U.S. PE Fundraising?

By Generational Equity

Record Year Private Equity Fundraising

According to a number of sources, 2019 will most likely close as a record year for private equity fundraising. In fact, according to Pitchbook, it has already crossed that threshold:

Brookfield closed its fifth flagship PE fund on $9 billion on November 4th, tipping US totals into the all-time-high territory. (Though the firm is based in Canada, its private equity arm is run out of its New York office.) In total, US buyout funds have already raised north of $246 billion in 2019, according to PitchBook data—and the year's not over yet.  2017 previously held the record for US PE fundraising, bringing in approximately $238 billion. Before that, pre-recession 2007 had secured the most capital, with a total of about $235 billion raised.

So the first question you may have is why? Why are limited partners pouring so much capital into U.S. based PE firms? Because despite its many reported flaws, the PE industry really works! Especially for those firms that focus on investing in lower middle market businesses.

If you want to learn more about why PE is so effective in generating growth, jobs, and ample returns for its investors, The American Growth Council has a very nice primer for folks to review:

This is how they summarize PE:

“The private equity industry grows businesses, supports local jobs, and improves communities across all fifty states. At the same time, the industry delivers the highest long-term returns to investors and supports a secure retirement for teachers, firefighters, and other public servants”.

In an era of tepid economic expansion at best, lots of investors of all types are flocking to private equity because, although it’s not a risk-free investment, it certainly is generating great returns for investors.

In fact, according to the latest analysis by The American Growth Council, over the past 12 months here are some IRRs for you to compare:

  • ILPA Private Equity Index (excluding venture capital) = 15.2%
  • Russell 3000 Index (including dividends) = 8.8%
  • S&P 500 Index (including dividends) = 9.5%

So as you can see, it is clear why wise money is investing with U.S. PE.

What This Means to You

The amount of funds raised this year is great news for owners of privately held companies in the lower middle market: Using add-on strategies, your businesses are becoming very popular with PE firms. 

Of course, this is just one buyer group out there (and there are many more in today’s market) and not every company is a logical target for a PE firm. However, it does represent a buyer group that you should ensure you have on your list of suitors.

If you are a relative novice in exit planning (and until you have sold a company, you most certainly are) it would behoove you to attend our complimentary exit planning conference.

While there you will not only learn significantly more than you know now on the topic, you will also have the opportunity to meet with our M&A professionals who will be in attendance to discuss your exit planning ideas.

Interested in learning more? Please use the following links:

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

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