DealLawyers.com Blog

According to a recent PitchBook article, strategic buyers are increasingly willing to pay through the nose for assets held by private equity funds – and a lot of those funds are increasingly looking to strategic buyers to supply an off-ramp for their investments.  This excerpt explains the dynamic:

Corporate buyers, with the ability to tap cash on their balance sheets, stock, or investment grade debt, have greater flexibility and a lower cost of capital to fund larger acquisitions. In addition, corporate buyers expect to achieve cost and revenue synergies from an acquisition, positioning them to pay high multiples for ideal targets. Lured by these greater premiums, PE firms are more often looking to exit through sales to strategic buyers versus IPOs or sponsor-to-sponsor transactions, according to a recent survey of PE fund managers and portfolio-company CFOs by BDO USA. The firm mainly advises fund managers in the middle market and upper-middle market.

The article says that 57% of respondents to the BDO survey would pursue sales to strategic buyers for exits in the next 12 months, up from 33% last year. Only 9% expect to pursue exits through IPOs, compared to 29% last year, and fewer respondents said they expected to sell to other PE sponsors than last year.

– John Jenkins