Happy Friday, hubsters!
In stark contrast to what has been a gangbusters year for dealmakers, it’s an eerily quiet morning on the M&A front. Recent months can be summed up with big deal volumes and deal values, and that only continues.
As one veteran banker put it on a recent call: “Three years from now we’ll look back at this vintage of private equity deals and we’ll either say that was the best buying opportunity in the pandemic in the history of mankind or boy people spent like drunken sailors because they didn’t know what to do with the dough.”
I’m hearing the busy deal environment is leading to even more accelerated and more curated sale processes, which isn’t all that surprising. Bankers, concurrently, are also becoming more selective. Perhaps more interesting, I’ve heard that more banks are “taking a pass”, or rather, turning down engagements as underwriters on IPO processes because they are too busy and that’s “passive economics”. “It’s sort of shocking because when we take companies public there’s an enormous amount of downstream fees,” one senior PE professional whose firm has been involved in many IPOs told me.
I often hear that unless a PE firm believes it is one of a handful of chosen parties to participate in a process, and it actually has a good shot of winning, it’s probably going to spend its resources and time elsewhere. That again isn’t too surprising. But, to be sure, getting a “gold card meeting” or being told you’re one of a few doesn’t always mean the process is narrow; in some instances, that sell-side perception/communication differs from a reality in which interest from many parties is sought out, sources have said.
Do you agree or disagree? What other interesting process dynamics are you witnessing today? Hit me up.
In a recent report discussing mid-market trends, my colleague at affiliate publication Private Equity International also concluded that managers are having to get in front of deals quickly and be selective about the targets they want to pursue.
“Even though there are a lot of firms and a lot of competition, there are actually a lot of deals in the market,” Dave Tayeh, head of private equity, North America at Investcorp, told PEI in a recent interview. “If it’s not something we feel great about, we’re not going to spend a ton of time [on it], because we know others will.”
This dealmaking frenzy is also putting extra pressure on service providers. Lucas Group founder Jay Lucas tells PEI that the system is overloaded with more demand for deals than there is capacity. And it is not just providers of services such as market mapping and due diligence that are feeling the heat in the mid-market. Elsewhere, robust fund finance activity has led to pent-up demand for new recruits at US banks, according to Rory Smith, founder of fund finance-focused talent search company Brickfield Recruitment.
Secondaries: Another big disruptor in private equity today is the secondaries market, of course. Today my colleague Chris Witkowsky has an interesting update on one such situation involving a company in the business of funeral services.
Access Holdings, which earlier this year closed its first fund after years of deal-by-deal investing, extended its hold over pre-fund portfolio company Foundation Partners Group through a secondary process, the firm confirmed to Buyouts.
Independent sponsor secondaries, which represent a small part of the overall market, emerged over the past few years as an exit path for deal-by-deal managers, Chris writes. Coller Capital led the investment group on the deal for Foundation, which totaled nearly $500 million, a source said.
That’s it for me! Have a great weekend, and in the meantime, hit me up at firstname.lastname@example.org with any tips, comments or just to say hello!