Committed Capital and the Current Seller’s Market

By Generational Equity

10/05/2016

As we have discussed in previous articles, private equity firms are sitting on a cash pile of over $800 billion, according to Preqin, the alternative assets industry’s leading source of data and intelligence. Now comes even more interesting news from PitchBook, a leading M&A research firm: “A plurality of that is concentrated in funds of the 2015 vintage, with the majority (55%) in funds closed over the past two years.”

You can see this visually in the following chart:

Source: PitchBook – Note: Funds return data includes 2016 numbers from vehicles that have begun reporting but have not fully closed.

The implications of this data are clear to M&A professionals and researchers. This is how PitchBook describes the situation:

With such proportions, it’s clear that PE investors have more than enough capital to fuel typical investment cycles for some time. For the midterm, the heft of capital in 2012-2013 vintages will continue to contribute to the upward pressure on valuations for worthwhile targets currently in the market. With such a hoard of youthful dry powder, many PE funds are prepared for the onset of the next investment cycle.

As many of you are aware, we have been in the midst of a “seller’s market” for the last 2-3 years, with PE firms being very aggressive during that time frame. Even though data may suggest that the M&A market has softened a bit after a record 2015 (although not in the lower middle-market based on our deal activity) with the significant percentage of committed capital available to firms (55% of $800 billion), we expect the next 18-24 months to continue to be a prime time to find a buyer/investor for your business. This is especially the case for companies with revenue below $100 million. The ability to finance these “smaller” transactions is greatly enhanced when compared to the trials in obtaining lending for much larger deals.

If you would like to learn more about committed capital and what it means for middle-market business owners, contact us and set aside some time to meet with us at our next exit planning seminar. Not only will you have access to some leading research on buyer activity right now, you will also have the opportunity to meet with our team while there and confidentially discuss your particular situation and needs.

Reach out to us at 972-232-1121 or send me an email at cdoerksen@generational.com and I will put you in touch with one of our team members that can answer any questions you might have.

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

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