We, at Boustead, see a trend of big investors and company buyers, including pension funds, family offices and wealthy individuals, choosing to make direct investments in companies and projects rather than invest through intermediaries like hedge funds and private equity groups.
Boustead’s professionals talk with investors and acquirers daily which gives us a good sense of this trend.
In fact, we posted an article in early 2016 describing that in response to this trend and in order to get the best deal for our clients, we regularly reach out to a broader universe of potential investors and buyers including those pension funds, family offices and wealthy individuals.
It caught my attention, therefore, when Axial, the huge online deal source database, reported that it too has seen the direct investment trend and described several driving forces which are likely to continue the trend (click here).
Axial’s three driving forces are:
Greater private company information availability which diminishes the value of deal intermediaries’ famed proprietary deal networks.
Greater capital source information availability due to online resources such as Axial.
Reported “fee fatique” which may simply be a reaction to lower returns generated by hedge funds and private equity funds. I wonder, if returns were strong, would there be fee fatigue?
Neither Boustead nor Axial is forecasting the end of hedge funds and private equity groups. Rather, the trend signals that there are more funding and sale options available. For companies looking for capital or for a buyer, and for their investment bankers, that’s good news.
Please contact me to discuss any capital market project whether raising capital, equity or debt, or M&A. Thank you.
The perfect deal, that’s what many private equity firms are searching for. That’s, a buyout of a company with years of stable to growing free cash flow, moderately high and defensible profit margins and a management team right out of central casting.
The competition for those perfect deals is intense and results in private equity groups paying relatively high prices to win. My colleague, Randy Schwimmer, author of the online newletter, “The Lead Left” reports the latest statistics in this excerpt from his recent issue:
For one thing, total leverage seems again to be reaching radioactive levels. Thomson Reuters LPC reports total debt to EBITDA for middle market institutional buyouts “skyrocketed” to 6.5x for the third quarter. Admittedly, that’s on a relatively small sampling, but the statistic points to a broader trend.
Higher leverage is being driven by similarly gravity-defying purchase price multiples. Of the four middle market LBOs where information is available, all were over 12x, and three were over 15x. This speaks to the fierce competition for new properties being engaged in by both private equity and strategic corporate buyers.
How long this lasts is anyone’s guess. But, while it lasts, if your company fits the criteria, you might consider a sale.
To read “The Lead Left”, a subscription newsletter, click here.
The window is open for smaller middle market private companies to obtain capital from private equity funds. The former cutoff of $5 million EBITDA to get interest from private equity firms seems no longer in place. Smaller firms with less than $5 million of EBITDA are attracting interest.
If your smaller middle market company would benefit from additional equity capital, now may be the time.