In recent months, an interesting trend has emerged which distinguishes financial acquirers from trade buyers.
Whilst higher interest rates have meant that private equity acquirers are raising debt on a more costly basis than was the case in the relatively recent past, they are often paying up to 20% more than trade buyers for their acquisitions.
Source: BDO’s Private Company Price Index
What is causing this trend?
This trend appears to be caused by two main factors.
Firstly, the private equity community is sitting on a large amount of uninvested equity ($1.2 trillion according to Bain and Co). This uninvested capital could in certain instances mean that investors in private equity funds are released from their commitments where the funds are getting towards the end of their life.
The second factor is that private equity firms look for an exit from their investments in a comparatively short time frame whereas trade buyers are often prepared to invest for the longer term. This in turn means that private equity investors pay a premium for their acquisitions.
How we can help
UHY Hacker Young’s Corporate Finance team has vast experience of dealing with both private equity and trade acquirers. Should you be considering selling your company, please contact your usual UHY corporate finance adviser or get in touch below.
