Pitchbook, a leading private equity research firm, released its first quarter 2010 report on private equity activity. PE activity continues to increase, with the lower middle-market continuing to lead the way with the lion’s share of activity, although larger transactions are supposed to rebound in 2010 with as the credit crisis continues to ebb.
This is a great sign, because to me its a real and tangible economic indicator. PE firms as a general rule invest in healthy growing companies. Simply put, there are a growing number of them. The Pitchbook report also makes note of the $400 billion of “dry powder” that the entire PE investment community has ready, waiting to invest. The PE firms have not been holding on to this money waiting for the economy to turn around, they just plain have been unable to find investments.
We know this, because when we market one of our clients we get extremely healthy response from PE firms. We brought a firm to market last year, in the depths of the recession, and had well over 100 serious inquiries and over 30 written offers, mainly from PE. 2009 was a down year for PE deals, but not from lack of trying.
It was also interesting to note that the percentage of “add-on” PE acquisitions is increasing. This isn’t surprising as PE firms focus on strengthening the portfolio holdings they have as we slowly exit the recession. I enjoy doing add-on deals, as it means the PE firm is really a strategic acquirer, one that is educated and knowledgable about the specific industry, and that sees synergistic value in acquiring our client.