I recently attended a networking conference intended for investment bankers, advisers and institutional investors. Upon signing up for the conference my name was added to the attendee list. I was surprised just how many investment groups quickly requested meetings with me. Their goal in reaching out to me was to inquire as to what sell-side engagements had in the pipeline. Gauging from the interest level I received, it became clear that the Private Equity and other Investment Groups needed to deploy capital in the middle-market.
Due to low interest rates and other market forces, middle-market private equity has become a preferred investment asset class to investors seeking above average returns on capital. With a lack of competing options for high alpha, end investors are piling into these professionally managed private equity funds and similar type vehicles. The issue is that all of this investment capital needs to be deployed and is consequently competing for high quality middle-market companies to invest in, whether it be in the form of control, minority investment or various levels of debt.
Investment managers such as private equity group general partners obtain capital commitments from their investor base by assuring them that their capital will be invested in high quality companies. The capital is normally contractually committed, or in many cases, actually transferred into the investment fund. If the capital is not invested or sits dormant, the end investors are not earning a return on the capital they committed. If not deployed, they would be better off investing in another asset class, for example the public stock market. Moreover, fund managers and middle-market investment sponsors normally do not earn management fees unless they deploy the capital that has been committed to their respective funds. This creates incentive for them to source new middle-market companies to purchase and invest in on behalf of the funds they manage, further creating demand for middle-market assets and pushing EBITDA purchase multiples higher.
In the Florida market where my firm is based, we are seeing a tremendous appetite for middle-market businesses with existing EBITDA and attractive growth prospects. We are especially seeing heavy investment activity in the tri-county area of Fort Lauderdale (Broward), Miami (Dade) and Palm Beach. Investment managers call me daily to find out what sell-side engagements I have signed up as clients. As a result my Rolodex of investment groups has expanded exponentially. This further allows me to find the right buyer or buyers to purchase or invest in the client companies I represent.
If you would like a free consultation on selling your middle-market business, please contact us.