Growing Trends for Middle Market Business Sale This Year
With 2017 coming to a close, it’s an opportune time to consider what we’ve learned. Private equity firms raised over $200 billion globally this year as of December. By the end of the third quarter, the U.S. middle market had completed $233 billion in deals, according to PitchBook third quarter data. This data means that 2018 will again make for a busy marketplace that’s not going to slow down.
Based on the past year’s performance, there are several major trends developing in private capital markets. Here are some of the most noticeable trends for the coming year.
Deal Sourcing Evolution
Deal sourcing is the process through which investment bankers, private equity firms, family offices, business owners, and strategic buyers are able to find, evaluate and potentially choose business opportunities, including sell-side listings and buy-side mandates.
High levels of “dry powder” or cash reserves have put more pressure on fund managers to put capital to work, a risk in a market where purchase price multiples are high.
In addition, business development professionals are being added as private equity firms have realized that it’s not efficient to have dealmakers sourcing deals with someone dedicated to the job if a firm intends to stay around. More PEFs are hiring these professionals at the partner level. In the same vein, as the private equity industry develops, deal sourcing has become a significantly greater focus of most firms. Many have enjoyed success with junior staff, but most appear to be assigning senior level individuals to fill this business development role.
In addition to tasking more senior professionals, the next generation of business development professionals often are using technology for more efficient results. This trend will be discussed in a future article.
Valuations at High Water Mark?
Another significant trend for private equity firms is a growing concern over where valuations are now, which seems to be at the high end of the historical cycle. Experts have been warning about this for several years. This also puts pressure on private equity firms to leverage capital in an efficient manner that will meet the hurdle rates of their investors… the minimum rate that a company expects to earn when investing in a project.
Contact an Experienced Business Advisor in Sacramento
The outlook for your company and its opportunity for growth are a critical concern for your business. Determining how to grow can be a challenge, and there can be a multitude of questions. Work with an experienced business advisor to find out how to grow your business.
Andrew Rogerson specializes in helping business owners sell a business. Services include business valuations, marketing the business, negotiating the transaction as well as third-party lending, due diligence and escrow. He is the author of four books on business ownership called Successfully Start Your Business, Successfully Buy Your Business, Successfully Buy Your Franchise, and Successfully Sell Your Business. For more information visit our webpage or call Andrew Rogerson at (916) 570-2674.