“54% of private equity investors feel small to mid-market buyout funds present the best opportunities in the current climate,” according to the Preqin Investor Outlook: Alternative Assets, H1 2019 report released earlier this year. The focus on small to mid-market buyouts is not new, but it does speak to the increased competition that investors are confronting. Moreover, 72% of investors view asset valuations as the biggest challenge for return generation, followed by competition for assets (40%), rising interest rates (33%), and the exit environment (32%).

Even as competition rises and dry powder sets record, “almost all surveyed investors are planning to maintain or increase their allocation to private equity over the longer term, which is a similar level to previous years,” per Preqin. With the increased competition for assets and the potential opportunity for small to mid-market deals, deal sourcing is emerging as an important component of overall fund performance.

The mid-market is where the majority of transactions take place, as there are simply more deals in the sub $500 EV range. In the first two quarters of this year alone, more than 3,300 deals closed. As more and more investors flock to this subset, understanding who the key players are (financial advisors, legal advisors, lenders, etc.), what the fastest growing sectors are, and where the most active regions in North America are will help to not only focus your strategy, but also prepare you for success among your competitors.

The Source often promotes the benefits of discovering and building relationships with new deal sources. These deal sources are typically sell-side financial advisors that are active in your given market and target criteria. These firms can serve as an influencer to not only bring you new deals, but also offer a perspective on the direction of the market and tactics to successfully manage your fund. Of course, these are not the only influencers available. There are many participants involved in an M&A transaction that can help you to navigate this competitive environment.

Legal advisors are an additional resource that can provide useful insight in a given sector and speak intelligently to overall market trends. With nearly 330 law firms providing sell-side legal advisory services for transactions in the sub-$500 EV range during the first-half of 2019, there are plenty of opportunities to build new sourcing relationships from these advisors, as well as gain general industry knowledge of where deals are taking place, and current trends, among many other factors.

Entering the second half of 2019, however your firms decides is best to navigate this market in terms of new deal sources and potential opportunities, remember the SPS Portal is here to provide intelligent deal sourcing data. The SPS Portal is laser focused on directing you to the key players in the market based on your strategy.

Last week’s deals today

July 8-12, 2019
~103 deals traded

IBM Corp. completed its buyout of the Raleigh based Red Hat, Inc. for a jaw-dropping $34 billion. Red Hat is a provider of enterprise open source software solutions, that use a community-powered approach to deliver Linux, hybrid cloud, container, and Kubernetes technologies. Sell-side advisors on the deal included Guggenheim Partners and Morgan Stanley.

Most active subsectors
  • IT: Software & services
  • Services: Misc., asset light
  • Industrial: Misc. equipment & products
  • Healthcare: Specialty clinics & centers
  • Services: Marketing & related
Most active cities
  • New York
  • San Francisco
  • Omaha
  • Denver

Photo by Philip Strong on Unsplash

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