Private equity firms were doing deals last year. You just didn't notice because they were mostly small add-on acquisitions.
According to tracking firm Preqin, private equity firms did a record number of so-called bolt-ons, where a manager makes a smallish acquisition for a portfolio company. Last year set a record for the number of bolt-ons, according to Preqin, while the business of buying big new companies for the portfolio lagged.
A lack of consistently available loans has hampered large private equity transactions in the past year. Because add-ons are smallish transactions, bank funding is less of a critical element.
Private equity firms are also focused on the health of their portfolio companies -- seeking ways to add strength to holdings that are coping with recessionary or slow-growth conditions. A good bolt-on can add revenue growth, provide synergies and open new market.
"While the number of deals of other types plummeted, the number of add-on deals completed during the downturn remained relatively consistent and has since more than doubled," Preqin wrote.
The trend shows no signs of stopping. In the first month of this year, such transactions accounted for a third of all deals by private equity funds.
"With market conditions remaining unfavourable and credit opportunities restricted, it is likely that we will continue to see add-ons remain at record levels in the coming months, as fund managers turn their attentions to consolidating their current holdings with primarily small and midsized add-on acquisitions," Preqin wrote in the report.
