Get your bite of private equity financing
Posted on Wed, Oct 20, 2010
As 3G Capital digests its $4 billion acquisition of Burger King Holdings Inc., statistics on private equity investments and transactions provide food for thought.
Through the second quarter, fewer private equity deals were done in the first half of 2010, but those that closed were larger, according to "The Private Equity Breakdown 3Q 2010" from PitchBook Data Inc., an industry research firm.
Deals worth less than $50 million accounted for the smallest percentage (40.3%) of total transactions since 2003, while those of $50 million to $250 million (38%) hit a seven-year high. The percentages of transactions worth $250 million to $500 million (7.6%), $500 million to $1 billion (10.4%), and $1 billion or more (3.7%) also increased.
Large deals accounted for most of the private equity dollars invested in the first half as well. Investments of $500 million or more accounted for $31 billion of the $48 billion invested in the first six months.
The most active segment was $500 million to $1 billion, with $14.8 billion invested. That was a 44 percent increase from the first half of 2009 and put the segment on pace for its third biggest year, according to PitchBook analysts.
While the overall increase in private equity activity and the strong showing for large transactions and investments are encouraging, a dearth of deals could stymie growth or exits at smaller companies.
Investors prefer funds focused on “reasonably –sized deals capable of closing today,” PitchBook analysts wrote. Finding financing for smaller companies is challenging.
Only three funds of $100 million to $250 million closed in the first half. Funds of $250 million to $1 billion accounted for more than half of the closings.
Still, you do have options if you own a small company that wants to draw private equity investments or buyers.
- Build a bigger business that is large enough to fit within the preferred investment and transaction sizes.
- Draw interest by making your company attractive based upon the needs of specific buyers.
- Position your business as a strategic acquisition that would accelerate a rollup.
- Lower your debt to equity ratio to make a leveraged buyout more attractive.
- Pursue relationships with private equity funds that have worked with companies similar to yours so that you can develop your business to their specifications.
Regardless of how you choose to proceed, implement your plan now. With 100 deals and almost $25 billion in proceeds, the three months ended June 30 marked the busiest quarter for private equity exits in almost two years, according to PitchBook.
Analysts expect exit opportunities to increase as private equity investors have record amounts of cash and demand for public offerings of PE-backed companies is increasing.
Position your company now, so that you will benefit later.
