Last month, Porter White attended the ACG M&A South Capital Connection in Atlanta, along with over two-hundred private equity firms, investment banks, and other capital providers. The story we have heard for years continued – competition to invest capital and close deals has continued to drive up valuation multiples and the private equity market is poised for another strong year in 2022. Based on the conversations that took place, we identified the following key takeaways:
- Acquisitions of companies with less than $3M EBITDA have historically had a lot less competition from private equity groups, but increased competition and elevated deal multiples have pushed these groups to pursue smaller deals.
- There is a buyer for every type of business and every potential deal structure.
- The number of formalized family offices continues to grow in the private equity marketplace, as long-term (or infinite) holding periods and culture fit resonates well with founder-led and family-owned business.
We’ve worked with many companies in the lower middle-market (less than $5M of EBITDA), and while these types of companies still tend to be more attractive to smaller, local private equity firms and family offices, larger national firms have been forced to seek out smaller deals in order to deploy capital.
Another important takeaway from the conference is that there is a buyer for every type of owner and business, as long as it is well run. Most want control, but not all aim to operate the business. Most want growing profitable businesses, but some look for distressed businesses and understand the COVID impact. Some of the risks facing small investors in private businesses (customer concentration, key manager risk, distressed financials, etc.) can be diversified away (or at least significantly reduced) by industry strategic investors and larger sophisticated private equity buyers who own (or plan to acquire) other businesses in the industry.
There is an overabundance of private capital looking at too few deals with limited time horizons, and as such, sellers are positioned to have very successful exits in 2022. If you know of a business that needs advice on its capital needs, please do not hesitate to contact us.