Several times during the past few months we have seen estimates regarding the size of the private equity overhang. This refers to the amount of capital committed by investors to equity firms for investing purposes. When private equity funds are created, most have limited lifetimes. That means that fund managers typically have 5-7 years to invest the private equity overhang, or they have to send the capital back to their investors. Since they really don’t like doing this, the size and the vintage age of the private equity overhang really does matter.
Recently Pitchbook, a leading research company that tracks equity and venture capital fund activity, updated their estimate of the private equity overhang. As you can see from the following chart, although the amount of committed capital has declined slightly, it is still a huge number.
As of the end of 2012 the private equity overhang stood at nearly $350 billion. This is a substantial amount of money that needs to be invested. This is how Pitchbook describes the situation:
“One of the most important aspects of the capital overhang is the large portion of dry powder that is currently held in 2007 and 2008 vintage funds. There is still more than $100 billion left in these vintages, which is more than the 2009 and 2010 vintages. As PE firms typically have a five-year mandate to invest a fund, the dry powder in these vehicles should evaporate in the next couple of years.”
Since equity firms really don’t make any money if they let funds “evaporate,” most analysts point out that the $100 billion in the funds that will be expiring soon will drive equity firms to be even more aggressive in finding great companies in which to invest.
But there is a challenge in this: Equity firms tell us the toughest issue they face is simply finding enough good candidates to look at. They are hungry for deals, but they just don’t see enough.
Keep in mind that equity firms specializing in middle-market companies typically make 3-5 acquisitions a year. But to close that many deals, they tell us that they look at hundreds of opportunities – in some cases, several thousands.
The best way for an entrepreneur to rise above the fray and get noticed by an equity firm is to have professional representation. PE fund managers that we approach know that the deals we bring them are “buyer ready.”
To private equity fund managers, “buyer ready” means that the business owners are committed to the selling process (hence our upfront fee); they have gone through our evaluation process and have a realistic value expectation; and they are prepared to meet with and discuss their business with seasoned buyers.
Folks who go at this alone are lacking these characteristics, which is why equity funds have to look at so many companies to really find the ones that are ready for buyer scrutiny.
If you are considering the sale of your company or if you are thinking of bringing investors in to help it grow in the next 2-3 years, you need to talk to Generational Equity. We are the leading middle-market M&A advisory firm in North America based on Thomson rankings. We specialize in the lower middle-market and would enjoy meeting you to further explain your options.
No matter what you do, if you own a privately held company, don’t let the billions of dollars in private equity overhang pass you by. There is simply too much capital and not enough good candidates in the market today. What a prime time to be a seller!
Carl Doerksen is the Director of Corporate Development at Generational Equity.
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T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.Bryan D. Horn, Owner, Over Under Clothing
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Terry D. Wickman, President, Keytroller
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.Jay Dinnison, Owner of Sharpe Mixers
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.Robert Evans, President and CEO of Mealtracker Dietary Software
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.Terry D. Wickman, President, Keytroller
We are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.Pete L.
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.Robert Evans, President and CEO of Mealtracker Dietary Software
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.Andy Graham, Vice President, Modern Heating & Plumbing
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!Eric Erlandson, Owner, Action Fastenings, Inc.
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.Larry Moore, Owner, A Company Portable Restrooms
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