The M&A Weekly Digest articles are intended to provide insight on current M&A news but also provide M&A tips for private business owners looking to sell a business. This week we take a look at how private equity firms are a pillar of the economy; why pension funds and now endowments are turning to private equity investments; and how to get the maximum return for your business in regards to deal structure.
Economic Recovery and Private Equity Firms
Carl Doerksen explores the key role that private equity firms play in our economy’s recovery, further analyzing four specific ways they fuel growth as given by Tony James, president of private equity investor The Blackstone Group, in a recent CNBC interview. Private equity provides funding for the economy by offering capital for recovery and expansion, initial growth, investor returns, and stability.
Great Investment Returns
“One of the safest havens for pension funds has become private equity…More and more pension plans are increasing the percentage of holdings in private equity. We saw this a few months ago with the Employees Retirement System of Texas, which is increasing its allocation to private equity from 2.8% to over 8% in a span of a few years largely due to the returns equity firms can deliver. A few months ago, three of the largest pension plans in the U.S. announced that they too would be expanding their private equity portfolios.
Yale University has also recently announced something similar. Yale’s endowment ended its fiscal year in June with a value of $19.4 billion, enjoying a 22% investment return for the year. Driving this solid return was the endowment’s private equity portfolio that generated over a 30% return. Because of this, Yale is increasing the percentage invested in equity firms by 3%, which will mean that 34% of the entire endowment will be with private equity firms going forward.”
Deal Structure for Selling a Business
“Your optimal deal structure will depend on two issues:
- Your flexibility
- The skills of your M&A advisor to find the best deal for you”
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