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| The Daily Pitch |
| PE, VC and M&A |
| Your edge on global private capital markets |
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| As the window widens, PE firms rush to exit |
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By Madeline Shi, Sr. Private Equity Reporter
With the M&A market finally reopening, private equity sponsors are hastening to bring their portfolio companies to market and seek a sale. In an effort to satisfy their investors’ thirst for distributions, some fund managers are exiting their crown jewel assets earlier than they would have preferred—even when doing so means giving up potential incremental returns.
Several deal lawyers and advisers to buyout firms said they are seeing an uptick in sale processes and exit planning for PE-backed companies. What stands out in this flurry of efforts to cash out is that some are selling top-performing assets they acquired only in the past several years. |
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Many of these investments were made in late 2021 or in 2022, with a small number of assets coming to market after relatively short holding periods of just under three years, according to advisers.
In these cases, sponsors have quickly executed add-on acquisitions or pulled operational levers to create value and drive growth. They expect these companies to grow into higher valuations and generate more returns if held longer. But, instead of waiting for that upside, GPs are opting to sell now, driven by the eagerness to show returns to their LPs.
“We have seen a lot of these assets just a handful of years ago, and we are surprised by how quickly GPs are moving on (them),” said Brad Haller, a senior partner at West Monroe who advises strategic and financial buyers in executing post-merger integration and value creation initiatives.
He noticed companies brought to market shortly after sponsors integrated add-ons and completed steps for technology modernization. Traditionally, a PE firm would hold the company for a few more years, giving it time to stabilize and allowing the value-creation efforts to fully reflect in financial performance, which ultimately will support a higher sale price, he said. |
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