Favorite States for Private Equity Investment

If you had to guess which states are most favored by private equity firms for investment purposes, you might not guess Colorado, Utah, Massachusetts, Texas and Vermont. But the data suggests that this is in fact the case.

If we rank the states by the most PE portfolio companies, we essentially get a ranking of the states by size. Although California, Texas and New York have the most number of private equity backed portfolio companies, these states also have the largest economies. Interesting but not terribly insightful.

Top 10 States with the Most Private Equity Owned Portfolio Companies

1. California
2. Texas
3. New York
4. Florida
5. Illinois
6. Pennsylvania
7. Ohio
8. New Jersey
9. Georgia
10. North Carolina

Normalized for State GP

However, normalizing the number of PE portfolio companies in each state (as of April 2018) by the Gross Domestic Product (GDP) for each state, shows certain states have significantly more PE-owned companies per dollar of GDP.

Data used for the heat map…

Select Observations

While it might not be a huge surprise that Colorado tops the list (because who doesn’t like Colorado), surprisingly…

Oklahoma ranks #8 – a combination of a small economy and a heavy influence from the oil & gas sector. Portfolio companies in Oklahoma are weighted toward oil & gas exploration & production, related industrial equipment manufacturers and oilfield services companies.

New Hampshire ranks #9 – also a smaller economy (less than half the size of Oklahoma’s economy), but a much more diverse set of investments. Portfolio companies in New Hampshire span across multiple sectors: electronics, apparel, basic manufacturing, food & beverage, technology, software, engineering and others.

Implications

For private equity firms searching for less competitive landscapes for investment opportunities, perhaps there’s an argument to be made to look at companies in locations toward the bottom half of the ranking in the chart above… states like Ohio, Oregon and Washington, where the economies are sufficiently large but where private equity firms, as an industry have not penetrated as much as the top 10 states.

Note: This study does not factor in the size of the portfolio companies, just the number of portfolio companies in each state.