Private Equity Activity – What it Means to You (Part II)
A few weeks ago we published an article about private equity activity that examined Pitchbook’s new Decade Report. In that document, Pitchbook – an independent and impartial research firm dedicated to providing premium data, news and analysis on the private equity industry – analyzed the years from 2001-2010, specifically examining equity firm acquisition activity. One paragraph in the report really caught my attention:
“Lower middle-market deal activity, as defined by deals valued at $250 million and below, accounted for a majority of private equity deal flow during the decade. Despite the attention given to $1 billion+ deals, these lower middle-market companies have long been the bread and butter of private equity investment, accounting for 81% of the decade’s deals. Companies in this size range will continue to be of major importance to private equity as they play to PE’s strengths of value investing, leverage and growth creation.”
This paragraph caused me to wonder if Pitchbook might actually have data on specific equity firms and their activity in the lower middle-market. So I contacted them and they were gracious enough to share a table with me showing the acquisition activity of lower middle-market equity firms during the decade they were examining. Here are the 20 most active in this niche:
Lower Middle-Market Equity Firm Deals, 2001-2010*
|
Investor Name
|
Number of Deals
|
|
American Capital
|
106
|
|
Warburg Pincus
|
77
|
|
The Carlyle Group
|
59
|
|
GS Capital Partners
|
54
|
|
LRG Capital
|
51
|
|
Allied Capital
|
49
|
|
Golden Gate Capital
|
45
|
|
Sun Capital Partners
|
45
|
|
TA Associates
|
42
|
|
Alta Communications
|
38
|
|
General Atlantic
|
37
|
|
Welsh Carson Anderson & Stowe
|
35
|
|
GTCR Golder Rauner
|
34
|
|
DLJ Merchant Banking Partners
|
33
|
|
Oaktree Capital Management
|
33
|
|
Apollo Global Management
|
32
|
|
Francisco Partners
|
32
|
|
GCP Capital Partners
|
32
|
|
Nautic Partners
|
32
|
|
The CapStreet Group
|
32
|
Source: Pitchbook - *Only deals with disclosed values included
As you can see, these firms were quite active during the 10-year period that Pitchbook analyzed. On average, these firms closed 45 deals over the decade, which is about five per year. Keep in mind that this time frame included the deepest and longest recession since the Great Depression, so these numbers were deflated a bit because of that.
In addition, Pitchbook only included deals where value was disclosed. This means that any deal closed where value was not provided was not included in this table. Since the vast majority of middle-market transactions do not have value provided due to confidentiality issues, it is safe to assume that the total number of deals closed by this group was even higher than this table indicates.
Equity Firms and Your Company
So what does this mean to you as an owner of a middle-market company? Simply this: As you begin to look for buyers for your organization, keep equity firms in mind. If you are too small to be a primary platform company, you may be the right size for an add-on to a platform.
An add-on is an acquisition made by an equity firm that is “added to” or “bolted on” to an existing, larger platform company. By making a number of add-on acquisitions, an equity firm can take an entity and grow it substantially over time.
Of course the real challenge for you will be getting your investment opportunity in front of the right firm, at the right time, and in the right format to get their attention. Keep in mind that these professional buyers analyze hundreds of investment opportunities in order to make a single acquisition.
If your offering memorandum is not in proper order or – even worse – full of inaccuracies, your chances of actually selling to optimal buyers drops dramatically. This is an example of one common mistake that business owners make when marketing their companies. If you would like to learn about others to avoid, please click here and download our complementary whitepaper on the topic.
Avoiding mistakes like this is why we recommend professional help for folks thinking about selling on their own. If you would like to learn the basics about effectively selling your company to one of these buyers, I would invite you to attend a free Generational Equity workshop on how and when to exit your business for the most profit. Here is a sampling of the topics we cover in our conferences:
Business owners that attend our workshops tell us that the information they receive and the knowledge that they gain are very helpful as they begin to formulate plans to exit their businesses. If you would like to learn more, please click here and one of our M&A professionals will contact you to see if you qualify to attend.
Again, the important thing to remember is this: There are a significant number of equity firms active in the middle and lower-middle market. They buy companies in this space for one reason: to grow and expand them over a 5-to-7-year horizon before taking them public or selling them. Given how active they have been, it is prudent for you to consider them in your potential buyer equation.
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