In more uncertain economic climates, the private equity industry collectively shifts to smaller deals.
Consequently, the relative mix of private equity Platform vs. Add-on investments provides insight to how the PE industry views near-term, expected market uncertainty.
After releasing our free list of Platform Acquisitions in Q3 last week, we reviewed historical data to see how the Platform / Add-On ratio trends across time, monthly from Q1-2021 through Q3-2023.
Key Observations
- Platform investments, as a percentage of total private equity acquisitions, have declined from approximately three-quarters of PE acquisitions to roughly half of PE acquisitions.
- There’s a clear trend toward Add-ons becoming a more dominant investment strategy over the last 11 quarters.
- With increased uncertainty in the macro economy, higher interest rates, and additional geopolitical risks, private equity firms, as an industry, are taking smaller bites with their acquisitions.
- Platform investments tend to spike up at each year-end. This is a seasonal effect we see every year (even prior to 2021) as PE firms try to close larger deals before year-end.
- In Q2 and Q3-2023, we observe a trend leveling, implying the absorption of market uncertainties and potential stabilization of expected interest rate changes embedded in private equity acquisition strategies.
Implications
For investment banks, this is a great time to consider private equity firms as likely buyers for your clients’ companies, pitching as add-on investments to existing portfolio companies.
For private equity investors, continue to actively build relationships with lower middle market investment banks to increase potential Add-on deal flow.
In both cases, Private Equity Info’s M&A research database can help you connect with the right executives at more than 118,000 portfolio companies and 4,900 investment banks. Explore our cutting-edge M&A research tools, or download the Q3 Platform Acquisitions list to experience our comprehensive data quality.
