The Private Equity Industry Off to a Busy Start in 2010
Posted by Carl Doerksen on Fri, Mar 05, 2010 @ 09:34 AM
According to data released earlier this week, the private equity industry is showing signs of a solid turnaround in deal activity. According to Pitchbook News, 210 private equity investments have been completed or announced so far in 2010. February accounted for almost half of the total with 90 completed or announced deals, a nice improvement over the 77 deals last February.
Trends are beginning to emerge such as the attractiveness of the commercial services (45 deals), healthcare (30 deals) and information technology (27 deals) industries, as well as the increasing number of add-on deals, totaling 71 or 44% of all buyouts to be exact.
As we have been posting for months, with $400 billion in dry powder, equity groups will become much more active in 2010. The early data as reported by Pitchbook News certainly supports this assumption. And this also provides further support to our posting yesterday where we discussed the fact that financing is beginning to thaw as well.
What we find most interesting in the Pitchbook data is that 44% of all deals completed so far in 2010 are add-ons. For those of you not familiar with the term, add-ons are companies that are acquired by a PEG to be "added" on to an existing platform or portfolio company. As we posted on March 1st, add-ons are a key strategy for equity groups. Essentially an equity group will make an initial investment via the acquisition of a company in a specific industry that the PEG believes will provide an ample return. Then, over the course of the next 5-7 years, the PEG will look for strategic acquisitions of add-on companies. This allows for the growth of the platform company in terms of revenue but also an improvement in the bottom-line as synergies combine to reduce overhead and other costs.
Most middle-market business owners do not realize that their companies may be attractive as add-ons to existing platforms. Keep in mind that PEGs, especially PEGs that specialize in middle-market deals, have revenue and EBITDA criteria that can go quite low for add-on opportunities. So don't assume that you are too small to be attractive as an add-on.
However, not every company will be attractive to a PEG as an add-on. Dozens of factors come into play as PEGs look at potential acquisition possibilities. And keep in mind that PEGS are professional buyers. They will look at hundreds of targets to acquire just one. Given these factors, it is really vital that you obtain the services of an experienced M&A advisory firm like The March Group. As we posted on March 2, 2010 (Why You Need an M&A Advisor) so many things can go wrong to kill a deal if you attempt to sell your company on your own. The March Group has successfully closed deals for over two decades. We would be glad to do the same for your company. Please contact us so that we can see if your business might make sense as an add-on for an existing PEG platform (or for any other buyer type as well).