Private equity mergers and acquisitions and investment activity in the early months of 2017 suggests that industry players are continuing to focus more on the middle market, and experts say the increasing popularity of the space is leading to intense competition and rising price tags.
Of the 400 private equity firms surveyed in a report released this month by private equity research firm Preqin, 58 percent said that middle-market buyouts currently represent the best opportunities, more than twice the proportion that cited any other area. Meanwhile, more than half of those 400 firms said that they are seeing increased competition for middle-market assets, compared with 44 percent that said competition for large assets has grown and 35 percent that said competition for small buyouts has increased.
The heightened involvement of strategic buyers in the middle market could be particularly concerning for private equity players, according to Howard Berkower, a partner with McCarter & English LLP’s corporate practice, because they often have “very large cash positions” and “often pay more than PE buyers.”
PE has an advantage over such competitors when it comes to generating growth in companies they’ve acquired, however, he noted.