Private Equity and Dry Powder Update

By Generational Equity

12/19/2016

“Private equity has $1.3 trillion in ‘dry powder’” to invest, according to The Dallas Business Journal.

So what is dry powder and why does that matter to business owners?

Well the significance of this is simple: Dry powder, also known as capital overhang, is the amount of funding committed to equity firms by their limited partners (LPs). It represents a pledge on the part of the LPs to provide funding to equity firms for specific types of investments.

It is a good indicator of future PE investing and, as we have discussed before, is a number that is growing and growing.

So why is it significant? Because it needs to be spent! LPs do not earn a return and equity firm founders/managers do not get paid the big bucks until this capital is invested. So the $1.3 trillion that is committed is literally looking for a home, a place to park, so investors can earn an ROI (return on investment).

Keep this in mind: Since most transactions with PE firms are not 100% cash, this $1.3 trillion can be leveraged to actually be used to fund far more than that amount in transactions.

This is great news if you are the owner of a business today.

OK, so what is the catch (I mean nothing can be this perfect, aye?)? Well, equity firms look at hundreds (in some cases thousands) of opportunities every year. You need to make sure your business gets through the noise and is seen.

How do you do this?

Well, you might roll the dice and hope you can create a profile letter that will get you noticed (not likely since you have never created one before). Or you can hire the leading lower middle-market M&A advisory firm in North America to help you.

Dealmakers with the Generational Group work with thousands of buyers every year. In fact, we have more than 34K buyers registered in our database. We know what they are looking for and, more importantly, we know how to package your proposal so that it highlights your investment opportunity for them.

We would be glad to meet with you at one of our M&A conferences to discuss your specific situation. If you are interested in learning more about opportunities for your firm, please reach out to me at cdoerksen@generational.com or 972-232-1125.

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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