Private equity firms are increasingly finding themselves squeezed out of deals by aggressive strategic buyers.
For the longest time, strategic buyers (often competitors) preferred to sit on the sidelines when their intra-industry rivals came on the market. Instead of getting bogged down with a deal and worrying about integrating the acquired company, many chief executives decided it was better to simply deploy some more cash into their own firm and grow their way into the rival’s market share.
But that strategy was predicated on being able to expand. Now that the economy is so sluggish, many CEOs have changed their minds and realized that market share isn’t so easy to come by, according to mid-market private equity player Kilmer Capital Partners. The result: they’re much more willing to acquire.
The threat of strategic buyers in private equity bidding wars has simply added fuel to an already hot fire. Because markets are so shaky, fewer firms are up for sale, which means private equity funds already have limited supply. Add in fully motivated "strategics" who are willing to pay big multiples, and most funds simply don’t stand a chance.
What can private equity firms do? No one’s quite sure. But it’s surely made them reevaluate how they find portfolio companies.