Baird: Middle Market Private Equity Firms Anticipate 30 Percent Jumo in Sale of Portfolio Companies in 2004, Baird Survey Finds
FOR IMMEDIATE RELEASE
Mike MacMillan/Karen Seaman
- Substantial amounts of capital wait on the sidelines as 55 percent of committed funds remain uninvested; 40 percent of firms surveyed plan to raise new funds in the next year -
CHICAGO, Feb. 9, 2004 – Middle market private equity firms anticipate a 30 percent jump in the sale of portfolio companies in 2004, with the growth in activity driven primarily by improved economic conditions and higher multiples from buyers, according to a survey released today by Robert W. Baird & Co (Baird). Seventy-five percent of those exits are expected to be through a transaction involving a merger or an acquisition.
“The findings of the survey support the notion that private equity continues to be a growing component of middle market merger and acquisition activity,” said Steven Bernard, Director of M&A Research at Baird. “Given the strength of the underlying fundamentals, this is a trend that appears likely to continue throughout the year and into 2005.”
For its second annual U.S. Middle-Market Private Equity survey, Baird received responses from 81 U.S.-based private equity firms, representing $66.8 billion in assets under management, or an average of $516 million per firm. These firms held 1,024 portfolio companies, with a median age of just over three years. Eighty percent of those responding indicated that their ideal target enterprise value was under $250 million, with almost one quarter targeting companies between $100 million and $250 million in enterprise value.
In terms of sector focus, Industrial was the top choice of the firms based on 2003 data, followed closely by Business Services, Consumer, and Distribution. Business and Consumer Services, as well as Healthcare, were seen as offering the best investment opportunities going forward, with Industrial and Telecom viewed as less attractive.
Other findings from the survey include:
For transactions under $100 million, the majority of respondents expect multiples to increase by up to 0.5x. Forty-one percent of respondents expect the same increase for transactions between $100 million and $500 million, while thirty-three percent of those surveyed expect multiples for this group to increase by 0.5x to 1.0x.
39 percent of those surveyed indicated they had cancelled an exit in 2003, adding to the growing backlog of potential transactions for 2004;
Middle market private equity firms expect to make an average of 4.3 investments valued at $113.1 million for 2004, up from 3.2 investments with a value of $76.8 million in 2003. The median number is expected to increase by 50 percent, from 2.0 investments in 2003 to 3.0 investments in 2004;
Nearly half the firms surveyed indicated that they invest internationally, up from 32 percent in the 2003 survey;
The median amount of a fund that is currently invested is just 45 percent (the average is 41 percent), indicating that a substantial amount of capital remains on the sidelines;
In spite of the substantial amounts of undeployed capital, 40 percent of those surveyed expect to raise new funds in the next 12 months, and anticipate bringing in more money than is in their current fund;
Investment return requirements continue to trend downward; and,
A substantial decrease is expected in the number of restructured portfolio companies as compared to the last several years. In 2003, 69 firms indicated that 138 companies underwent a restructuring, accounting for 12 percent of the total. That number is expected to fall to 5 percent of portfolio companies in 2004.
“The objective in conducting this survey is to measure the current climate of the private equity community, including how firms are distributing capital and the criterion used for such,” said Chris Coetzee, Baird's Head of Financial Sponsor Coverage. “As noted, the middle-market is expecting an upturn in M&A activity in the coming year, and the results of this study underscore Baird's expectations for the industry as well."
Copies of the findings of the Baird 2004 “U.S. Middle-Market Private Equity Survey” are available upon request.
Baird, established in 1919, is an international wealth management, investment banking, asset management and private equity firm with offices in the United States, United Kingdom and Germany. Baird's principal operating subsidiaries are Robert W. Baird & Co. in the United States and Robert W. Baird Group Ltd. in Europe.
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