Private Equity, Dry Powder, & Why It Matters to You!

By Generational Equity

03/09/2020

Private equity firms have a record amount of cash to deploy in 2020. In fact, according to Fox Business News, they have an estimated $1.5T, an all-time high!

Fox adds:

As for private-equity firms themselves, their cash balances have risen every year since 2013 after falling the four years prior, in the wake of the global financial crisis. Still, how they generate more by moving out of previous investments will be a focus for investors and analysts.

Two items to consider here: First, far too few business owners that we meet with have PE firms in mind as potential buyers. They mistakenly think that they are too small or are in undesirable industries for PE firms to even consider. Our Insights over the years have debunked those myths:

• Why Do PE Firms Use Add-On Acquisitions to Grow?
• Why are Private Equity Add-Ons on a Record Pace?
• The Art of the Add-On Acquisition
• Private Equity Firms Are Looking for You!

Now if you take the time to review these articles, you will see a very common theme:

• “Sterling is focused on making majority investments in manufacturing, distribution and industrial service businesses and is interested in exploring partnerships of all sizes.” (Article one)
• “And it is great news for owners of lower middle market businesses because most PE firms in this niche have very low (if any) size criteria for add-ons.” (Article two)

Point number two: PE firms exist for one purpose – to invest the money their limited partners give them into companies and then help those companies grow via strategic guidance, organic growth and add-on acquisitions. Over time, either through taking the new entity public, or transitioning it to a strategic buyer (or another financial one), they generate returns for their investors.

So you see THEY HAVE TO INVEST THEIR DRY POWDER OR RETURN IT!

None of them wants a reputation for doing that, so the great news for you as a business owner is that the $1.5T must be invested in the next five years or so, which is the typical lifetime of a fund. And PE firms that specialize in the middle market are looking hard and aggressively for add-on opportunities.

The good news is that Generational Equity is here to help you prepare your business for sale, find an optimal buyer, negotiate and close the deal for you, as well as provide wealth management advice post-transaction.

To learn more about how we can help you take advantage of the $1.5T in dry powder currently with equity firms and move onto the next phase of your life, give us a call at 972-232-1121, or visit our website, provide us with your contact information, and we will be in touch.

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

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