July 11, 2024
A key trend in 2024 is that private equity firms continue to play a significant role in mid-market mergers and acquisitions, leveraging ample capital reserves and seeking attractive investment opportunities. At Woodbridge International, we anticipate heightened private equity activity across diverse sectors for the remainder of the year, with a focus on value creation, operational improvements, and exits through strategic sales or IPOs.
In a nutshell: private equity firms have emerged as significant players in the mergers and acquisitions (M&A) landscape, so much so that they now wield major influence and have the power to influence the trajectory of mid-market transactions.
With that in mind, let’s delve into the role of private equity in mid-market mergers and acquisitions (M&A), exploring the strategies employed by these firms.
Private equity has increasingly become a driving force behind mid-market M&A, defined as transactions involving companies with an enterprise value between $5 million and $250 million.
This is largely because, unlike larger M&A transactions, mid-market M&A offers private equity firms the opportunity to invest in companies with growth potential and a solid market presence.
Private equity firms have become a force to contend with primarily due to the proactive business strategies they employ. These include:
Private equity firms often form strategic partnerships with other investors or industry players to pool resources and expertise. This collaborative approach allows them to navigate the complexities of mid-market transactions more effectively.
Private equity firms frequently engage in add-on acquisitions, whereby they acquire smaller companies to complement and enhance the capabilities of their existing portfolio of companies. This strategy aims to create synergies, drive operational efficiency, and ultimately increase the overall value of the combined entities.
Private equity is not just about financial investments; it’s about driving operational improvements within portfolio companies. These firms bring in experienced professionals who work closely with management teams to optimize processes, implement cost-saving measures, and enhance overall business performance.
Unlike some short-term investors, private equity firms often have a longer investment horizon. Their focus goes beyond immediate returns, aiming at sustained value creation over the medium to long term. This approach aligns with the mid-market landscape, where steady growth and stability are often key considerations.
For the mid-sized business owner, there are several benefits to considering investment from a private equity firm. These include:
Private equity firms contribute significantly to mid-market M&A by providing access to capital. Their ability to raise substantial funds allows them to invest in mid-sized companies that may struggle to secure financing through traditional means. This infusion of capital often fuels growth, innovation, and expansion for mid-sized businesses.
Private equity’s involvement can act as a catalyst for the growth of mid-market companies. Through strategic guidance, operational enhancements, and financial support, these firms help unlock the full potential of their portfolio companies, driving revenue growth and market expansion.
For business owners looking to exit, private equity presents an attractive option. Private equity firms often provide an opportunity for owners to monetize their investment, while still maintaining a stake in the business and participating in its future growth.
Private equity-backed transactions frequently contribute to industry consolidation within the mid-market segment. By acquiring multiple companies within a specific industry, private equity firms aim to create larger, more competitive entities that can withstand market challenges and capitalize on economies of scale.
The investments made by private equity firms often result in job creation and economic stimulation within the mid-market sector. As portfolio companies grow and expand, they contribute to local economies, create employment opportunities, and foster innovation.
Private equity firms are skilled at mitigating risks associated with mid-market transactions. Through thorough due diligence, effective management, and strategic planning, these firms work to enhance returns on their investments, making them appealing partners for both businesses and investors.
While private equity’s impact on mid-market M&A is largely positive, challenges and considerations exist. Business owners should carefully evaluate potential partners, ensuring alignment in strategic goals, values, and timelines. Additionally, managing post-acquisition integration and balancing the interests of multiple stakeholders are critical aspects for successful collaborations.
This is where mergers and acquisitions advisors come into play. A seasoned M&A Advisory firm like Woodbridge International is able to assist a mid-sized business owner to assess whether a potential private equity partner is the right match in terms of strategy, values and goals.
A M&A Advisory firm will also manage communications between all stakeholders, including employees, customers, suppliers, and investors, to ensure transparency and minimize disruptions throughout the process. And the M&A Advisor will bring their negotiation skills to the table, balancing the interests of both buyers and sellers to ensure that negotiations are fair and mutually beneficial, fostering positive relationships between the parties (read ‘The Holistic Role of M&A Advisors in Mid-Sized Transactions’ for more on how M&A firms help facilitate smooth transactions between private equity firms and mid-sized companies).
In the intricate dance of mid-market mergers and acquisitions, private equity firms play a central role, driving growth, providing access to capital, and reshaping industries. Their strategies – focused as they are on long-term value creation and operational improvements – can have a profound impact on the businesses they invest in and the overall economic landscape.
For mid-sized businesses considering investment from private equity groups, it’s crucial to have an experienced M&A Advisor on your side to navigate this complex and dynamic landscape. Contact us today to set up an obligation-free meeting to discuss how Woodbridge International can assist you to attract private equity investment and ensure a mutually beneficial deal.
Want an update on the latest trends in private equity for mid-market businesses? Tune in for Episode 30 of our B2B podcast ‘Secrets to Selling Your Business’, featuring special guest Michael Cassata, Business Owner Advisory Strategist at Rockland Trust. ‘Private Equity Trends in Lower Middle-Market Businesses with Michael Cassata’ is now available on our YouTube channel. You can also listen to the episode on these streaming services: