Using our M&A research database at www.PrivateEquityInfo.com, I studied private equity investments and exits for the years 2015, 2016 and 2017.
The ratio of the number of PE (Investments / Exits) over time, sliced by deal size shows a significant industry trend – private equity firms moving down market to focus on smaller deals.
When the ratio of (Investments / Exits) = 1, private equity firms (in aggregate) are making one investment for every exit. This would be the “no growth” scenario. When the ratio is above 1.0, the private equity industry is a net acquirer of portfolio companies. This is the “growth” scenario.
For PE firms focused on Mid-, Large- and Mega-sized deals in 2015 – 2017, the (Investments / Exits) ratio was consistently about 2-to-1. Overall, private equity firms in these segments have been net acquirers of businesses over the past three years at the pace of roughly two portfolio company investments for each exit. This is no surprise as most people intuitively know private equity firms have become more prominent in recent years.
Size Ranges Defined (by Enterprise Value)
Small $0 – 50 million Mid $50 – 250 million Large $250 – 500 million Mega $500+ million
The same ratio for the PE firms focused on Small deals clearly illustrates that private equity has made a huge push into the lower middle market over the last two years. In the Smaller deal segment of the market, PE firms collectively made about 3-to-1 investments over exits in 2016 and 2017, compared to 2.3-to-1 in 2015.
The chart below is the exact same data, but with the bars re-arranged to group the years together.