Recently Pitchbook, a leading research firm specializing in tracking the private equity industry, released the first in a four-part series on the private equity industry’s growth over the past decade. Those of you that read this site regularly know that we have quoted Pitchbook on several occasions because we find their data to be quite compelling. This report really caught my attention because over the past decade, the private equity industry and its influence on the overall has grown dramatically.
This can be clearly seen in the following chart.
As shown, the amount of capital that has been raised by equity firms since 2001 is simply astounding. On a cumulative basis, U.S. private equity firms raised $1.5 trillion over the past decade. To give you an idea of just how much capital this is, according to The World Bank, the $325 billion raised in 2007 was larger than the entire GDP of several nations including Denmark, South Africa, Ireland, Finland, and the United Arab Emirates.
Even though the worldwide financial crises affected fundraising in 2009 and 2010, note that the $90 billion raised in 2010 was actually 32% higher than the total capital raised in 2001. This means that even in difficult fundraising years, the total is still higher than it was a decade ago.
As I have discussed before, equity firms raise funds for one purpose: to invest in companies. They usually have specific time frames in which they are required to invest the funds or return the committed capital to the investor. Since equity firms really don’t like to return capital, the question becomes how much of this $1.5 trillion is left over for investing? The following chart answers that question.
As shown, of the $1.5 trillion raised, nearly $500 billion is still being held as “dry powder” by equity firms (capital available to invest = dry powder). As you can see, this is a near-record high. This obviously means that equity firms are going to need to begin investing soon and repeatedly in order to use these funds before returning them.
This is really an interesting development if you are the owner of a about 80% of the deals closed by equity firms in the first quarter of this year were valued below $250 million. This means that the next couple of years will provide you with an unparalleled opportunity to find an equity firm to invest in your company. Of course not all middle-market companies are qualified to be targets of equity firms. But you may be surprised at what equity firms are looking for beyond simply EBITDA. The only effective and efficient way I have seen to truly position your company to be as attractive as possible to equity firms is to partner with an experienced M&A advisor. Don’t let this $477 billion pass you by.. As I have pointed out before, a vast majority of companies acquired by equity firms are classified as being in the . In fact,
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