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PRIVATE EQUITY - 2019

For the Year End 2019, the number of deals by Private Equity (PE) was off 15% from 2018. At the same time, the capital raised was up by 50% over 2018.

The majority of deals were transacted at less than $25 million, or 1715 in number. Next most common were deals between $25 and $100 million. About two thirds were for add-ons rather than new platforms.

Since most of the deals were premised on adjusted EBITDA, the PEs were accounting for synergies and growth before they were realized. Pitch Book noted that more than half of the 2016 purchases (leveraged buyouts) missed earnings projections by more than 25%.

Multiples averaged 10.9x, only slightly below the 11.5x of high multiples experienced in 2018. The continuum of high multiples was consistent with the following:

  1. Many deals were technology related, including software and healthcare.
  2. A plethora of transactions included IT and B2B as well.
  3. Many more funds devoted exclusively to tech were created in 2017 and 2019.

The most sought-after consultants for PE's are those in the following areas:

  1. Market strategists to improve revenues by product/service.
  2. Human resources – from hiring to retention processes.
  3. Base and incentive compensation and benefits, such as health, retirement, profit sharing and equity.
  4. Recruiting for key positions.
  5. Culture appropriation in blending the acquired company into a structure that accommodates different life styles but enables more profitability.

On the other hand, expectations for 2020 are a flattening or decline in multiples, as a turndown in the economy is anticipated for 2021. And financial institutions are retracting their leverage, which will further hamper pricing for sellers.

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