The private equity sector has experienced tremendous growth over the last five years, in absolute number of private equity firms, in the funds committed to the sector, in the number of executives working in the industry and in the number of portfolio companies acquired.

In fact, private equity investments have become so prolific, that few industry sectors (if any) remain untouched by private equity. Ten years ago, many business owners, especially in the mid-market, were unfamiliar with private equity. Yet, today, most businesses have interacted with private equity in some fashion, either through an acquisition, growth capital injection, introductory meetings & preliminary conversations, or, at the very least, some form of marketing outreach.

Growth in Private Equity Firms

The graph below shows the trend in the number of PE firms over the past 5 ½ years, from our M&A Research Database at www.PrivateEquityInfo.com.

Because there are some caveats (discussed below) that play into the exact quantity of firms shown, this graph is best viewed as indicative of the overall trend in private equity over time. Clearly, the trend is one of growth. In fact, ~12% compound annual growth over 5.5 years.

When we think of private equity, most of us tend to think of largest firms, like Carlyle, Bain, Warburg Pincus, Advent International, KKR, HarbourVest Partners, General Atlantic, H.I.G. Capital, Blackstone in the U.S. Or, perhaps we think about some of the largest firms outside the U.S. – EQT Partners, CVC Capital Partners, Hg Capital and Bridgepoint. These are all big names and very successful firms within the private equity industry.

However, what most people do not realize is that these firms are in the minority. They capture a lot of the news headlines and the media spotlight precisely because they are large. But the reality is, most private equity firms are quite small.

While we often think about investment banks being large-scale entities, the truth is, most investment banks are quite small.

Pulling the number of deal makers per firm from our M&A Research database at Private Equity Info, I found the median investment bank has only four deal makers. Said another way, half of the investment banking firms have 4 or fewer deal makers.

Further, 90% of the investment banks have 12 or fewer deal makers.

The histogram below shows the breakdown.

U.S. private equity firms collectively raised $462 billion in 2018. While this is considerably less than the $695 billion raised in 2017, it is still a significant increase over 2015 and 2016.

The chart below shows how the $462 billion in 2018 fund raises were distributed by size. As previously reported, the median fund was $30 million.

Top 10 Cities with the Most Private Equity Firms

1. New York, NY
2. Chicago, IL
3. Dallas, TX
4. Los Angeles, CA
5. Houston, TX
6. San Francisco, CA
7. Boston, MA
8. Greenwich, CT
9. Atlanta, GA
10. Austin, TX

The map below shows the concentration of private equity firms across various U.S. states, with obvious concentrations in New York, California, Texas, Illinois, Connecticut, Massachusetts and Florida (in that order).

Are private equity firms loyal to the same law firm through multiple portfolio company transactions? I probed our database of private equity transactions to find out…

The quick answer is, it depends.

Private equity firms try to develop and maintain good business relationships with the various investment banks because the I-banks drive potential deal flow to the PE firms. It’s a symbiotic relationship.

When private equity firms exit their portfolio companies, some act as their own M&A advisor (private equity executives often have prior investment banking experience), but many PE firms hire investment bankers to represent them in the sale of their portfolio companies.

Which Investment Banks Do They Engage?

A customer asked a question about our portfolio company data. While I was looking at the data, I wondered if there was any seasonality to private equity acquisitions. The quick answer is, not much.

At Private Equity Info, we track the senior level executives at the various investment banks. I thought it might be interesting to look at the number of investment bankers per firm to gauge what an industry-wide “normal” middle market investment banking firm might look like.