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.
By submitting my name electronically and clicking the “submit” button, I understand that I am providing Generational Group, Inc., Generational Equity, LLC, Generational Capital Markets, LLC, DealForce LLC, their affiliates, representatives, contractors, etc. (“Generational Group”) my telephone number, which may include a number that is wireless and/or a number that is on a national, state, or other Do Not Call registry or list. I hereby consent and agree to receive telephone calls including any autodialed and/or pre-recorded telemarketing calls and/or text messages (telemarketing) from or on behalf of Generational Group at the telephone number provided. I further consent and agree that telephone calls may be made using automated technology such as an automatic telephone dialing system, artificial or prerecorded voice, or SMS text messaging. Consent is not a condition of purchase. I further warrant and represent that any telephone number provided is not on any state or national Do Not Call Registry and that by agreeing to these terms and conditions that if any number provided is on any such registry, I hereby consent and agree to receive telemarking calls and/or communications including any phone calls, text messages, URLs, links, emails, etc. to the telephone number(s) and/or any e-mail addresses provided. I understand that by entering my name in the electronic form provided, that I am signing my name as equally as if it was my handwritten signature and that it is my intent to provide an “electronic signature” as that term is defined in state and federal law, as well as industry practices for e-commerce.
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.
Furthermore, all information contained within this website is the property of Generational Group.
Success, you have been added to our list.
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121