Middle Market Growth - November/December 2019

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ACG New York Event Taps Into PE-to-PE Dealmaking Kathryn Mulligan


record number of private equity firms raising capital has made dealmaking more competitive than ever, prompting many funds to turn to an unlikely source for market insight and deal flow: each other. Thanks to vast amounts of dry powder and the growing number of firms targeting smaller deals, it’s increasingly likely that a private equity-backed company will be purchased by another PE fund at the end of its holding period. In 2010, 36% of private equity-backed exits involved a sale to another PE firm, according to PitchBook. By 2018, that figure had risen to 48%. In response to high prices and competition, a growing number of PE firms are focusing on the middle market or lower middle market, where valuations can often be lower. That segmentation has created a feeder system for bigger firms. “As a lot of smaller funds have come into existence, they can be ideal incubators for companies that we’d be looking to buy,” says William Gonzalez, senior vice president of business development at Audax Private Equity, which looks for platform investments with $8 million to $50 million in Ebitda. Even as PE funds look to sell a business at the end of the investment period, or once a company has reached a certain size, private equity



E The 2019 PE Summit brought together private equity firms for one-on-one meetings

may still be able to support further growth. “They have to return capital to their investors, so it makes sense to exit at the time, but it doesn’t mean a lot can’t be done to increase the value of that company from Year 5 on, or from that exit on,” says Michele McHale, a partner at audit, tax and advisory firm Plante Moran and the leader of its private equity practice. Several years ago, a member of ACG New York’s board of directors observed a growing trend. A number of private equity firms that had traditionally reached out directly to business owners were starting to contact smaller funds to learn about a business before it came to market,

according to David Hellier, a partner at Bertram Capital and chairman of the board of ACG New York. At the same time, the chapter was seeing large funds, which often buy companies from other PE firms, participating in ACG New York events. “Based on those two factors, I set up a committee to explore launching a program that facilitated an opportunity for large, medium and small private equity firms to meet and discuss portfolio companies and sector interests, as well as best practices,” Hellier says. This year marked the fourth time ACG New York has hosted the event over the past three years. On