This is an extremely insightful article from Pitchbook on the state of private equity today.
Here are a few highlights I thought were most relevant:
- Increased borrowing costs and fewer opportunities for growth / multiple expansion have pushed PE to shift to a more value-oriented approach than in recent years. This has led to a renewed interest in divestitures.
- Divestitures as a percentage of PE buyouts more than doubled from Q4 2021 to Q1 2024 and analysts believe this trend will continue.
- The lower and core middle market is the divestiture’s “sweet spot.” It offers an opportunity to deploy smaller amounts of capital on seasoned businesses without the risks of early-stage companies with immature revenue streams.
- Divested assets can offer PE firms better value creation opportunities than buy-and-build strategies as they are less expensive than high growth companies, typically have significant turnaround opportunities, and can be bolted onto existing portfolio companies for additional synergies.
We are seeing an increase in divestitures in the market as well. They offer robust value creation opportunities that are well suited to our current financing environment.
Reach out if you would like to discuss.
