2 Major Investment Considerations: Past Performance & Ability to Execute
by Terry Stidham - Target Search Group
LP's expect for their capital to be invested into acquisitions that can return profits.
Source: Preqin Investor Intelligence
Public pension funds, university endowments, insurance companies and other institutions have pledged to invest many billions with private equity provided the deal makers can find companies to buy.
Investor Allocations to New PE Funds:
Source: Preqin Investor Intelligence
For those seeking to raise capital this is encouraging to see that a reasonable proportion of investors will be allocating large sums of capital to the asset class:
Source: Preqin Investor Intelligence
The LPs that are looking to make new investments in the next 12 months will be highly selective in such a competitive fundraising market.
Consequently, private equity fund managers’ need to be able to invest wisely in a timely manner.
The time is short to invest the capital raised over the last 7 years.
Many will be faced with returning money to clients along with a portion of the management fees already collected.
Some of the industry’s biggest players, like David M. Rubenstein of the Carlyle Group, Henry Kravis of Kohlberg Kravis Roberts and David Bonderman of TPG, have more than $10 billion apiece in uncommitted capital.
Even if more time is granted to make acquisitions the need for acquisition targets still exists.
As more firms seek to invest their cash we are seeing private equity funds become more aggressive in pursuing deals while pushing valuations upward.
Challenges -
- Sourcing deals – Committed sellers
- Valuations are be driven up - Tough competition for deals
- Abundance of capital to invest
- Approximately $900 Billion with private equity firms
- Strategic Buyers (non-financial companies) with over $1 Trillion
- Competition from the giants - Tight credit has slowed the gigantic buyouts pushing big players like Apollo and K.K.R. into the middle market for deals – causing bidding wars
- Source specific companies to match specific mandates
- Deliver Committed Sellers - sellers that can let go
- Avoid the shopped deal and the auction process
- Provide Cost Effective Sourcing
The ability to acquire companies will be the difference between success and failure in attracting and retaining institutional commitments.
About the author:
Terry Stidham is the founder and senior principal of Target Search Group. He is a B2B Business Development Leader with extensive knowledge of the M&A process, combined with an in-depth understanding of the constantly changing global capital markets environment. He has served as the head of entrepreneurial organizations as well as Fortune 500 companies. He specializes with mid-market companies in a diverse array of industry sectors from service and manufacturing to technical and professional firms.
Mr. Stidham speaks the language of both the seller and the buyer having vast experience on both sides of the transaction. He has been directly involved in the execution and successful closing of hundreds of investment banking and corporate finance transactions. Mr. Stidham has been instrumental in aiding thousands of business owners prepare their businesses for eventual sale by teaching them how to maximize efficiencies in operations leading to significant increased cash flow.
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