It is clear to Ryan Binkley and his associates at Generational Equity that private equity investors still have the U.S. middle market firmly in their sights.
As results are published for the first half of 2018, emerging statistics and industry reports are showing that demand appears to be growing substantially. The rising level of interest from PE funds is great news for middle market business owners, whether they are looking to exit their businesses now or attract ongoing investment with their eventual exit in mind.
Here, Ryan Binkley considers five key statistics that have emerged from the close of the first half of 2018, which illustrate the significant focus PE firms have on middle market U.S. businesses right now.
1. Middle Market Private Equity Up 16%
According to PitchBook’s recent report, 1,358 deals were completed in the first half of 2018 versus 1,171 during the same period last year – and 2017 wasn’t a slow year by any stretch of the imagination! This 16% rise – from an already healthy level in the previous year – in transactions stemming from private equity firms is fine evidence of their appetite to invest in middle market businesses.
2. Increase in the Total Value of Investment
The value of investment across the entire sector rose from $170 billion in the first half of 2017 to $178 billion in the same period of 2018. Though an increase of this nature can in certain circumstances be attributed to fewer deals at a much greater value, as we have already seen, the number of completed transactions has also risen. This indicates this growth of investment is driven by a focus on middle market businesses.
3. Rising Proportion of Private Equity Investment in Mid-Size Companies
In the second quarter of 2018, 68% of all private equity funds invested went into middle market companies. This represents a very healthy slice of the funds available – and that figure is up from 58% in the same period in 2017. Therefore, for middle market business owners looking for investment opportunities into their company, opportunity is knocking.
4. Increase in Middle Market Fund Sizes
The scale of interest in middle market businesses is reflected in the measure of investors coming to the table. The average holdings of private equity funds dealing in the middle market have risen 27% from $669 million in 2017 to $847 million today. This puts 2018 on course to exceed 2009’s record-breaking average of $786 million.
For Ryan Binkley, increasingly higher levels of capital being raised by PE middle market funds is a good indicator that the sector has serious returns to offer. But it’s also an indicator of the levels of capital available, which leads into the final point…
5. Healthy Levels of Capital Available to Middle Market Investors
Not only are healthy levels of capital being raised for private equity investment, but the lion’s share of this is going to PE middle market funds. In the first half of 2018 that proportion was a staggering 88%. While that statistic partly reflects a lack of high-value deals completed in the first two quarters of the year, it still reflects a pronounced level of interest in businesses within the mid-market bracket.
In fact, according to PitchBook’s Adam Lewis, as of June 30 there are 38 open middle market funds set to raise over $1 billion in capital. That’s a lot of money heading in the direction of U.S. middle market businesses.
Private Equity Knows Success
So, the evidence is compelling – private equity has developed quite an appetite for America’s middle market firms. And private equity investors are no dummies; they back winners. If they’re saying that the middle market is the place to be, you can bet that these companies are in great shape.
A booming sector means high demand, and high demand means increased business valuations. These are some of the conditions that create a seller’s market, and it has been a seller’s market that Ryan Binkley has seen blossoming over the last 5 or so years.
This is fantastic news for those looking to exit their business for maximum value – and food for thought for those wondering about how to time their eventual exit. After all, the current seller’s market will not last forever. It’s never too early to plan your exit, but waiting until you have to sell, rather than when you want to sell, could significantly limit the return on your investment.
Ultimately, every business owner will exit one way or another. The most profitable way for a business owner will always be to do this on their own terms, before exiting becomes a necessity, and at a time when the market is ripe for a lucrative transaction. For some business owners, whether they realize it or not, that time might be right now.
An Ideal Time for Business Owners to Stake Their Claim
If you are a middle market business owner, thoughts of these stratospheric sums of investor cash floating around in the market may have inspired you to stake your claim on a piece for yourself. If you are tempted by the idea of an exit transaction that could transform the lives of you and your family, it could well be time to bring your exit plans forward.
There’s no better way to get the ball rolling than by speaking with an M&A professional about how to take advantage of current favorable market conditions and achieve an optimal offer for your business.
If these facts and figures have left you wanting to learn more about how and when to exit your business for the optimal value, Generational Equity’s regularly updated insights feature invaluable information about the process.
On the website you can also register to attend one of Generational Equity’s complimentary executive conferences, designed to teach you everything you need to know about getting the maximum value for your business at exit.