Private equity firms collectively acquire thousands of companies every year.
PE firms often acquire platform companies to gain a foothold in an industry and then use that platform to acquire other smaller companies in the same industry. Platform acquisitions therefore signal that an industry may experience accelerated M&A activity and investment by private equity firms.
Which private equity firms are the most active in making platform investments in 2023?
Private Equity platform acquisitions signal further sector activity and opportunities for:
- Mid-market Investment Banks
- Executive Search firms
- Accounting, legal, and advisory firms
- Technology and software providers
For Investment Banks
New platform investments signal to middle market investment bankers that a private equity firm is interested in a particular market sector. Based on that PE firm’s historical growth strategy, an investment banker can quickly determine if the PE firm will likely make further add-on acquisitions in this sector. This is a significant leading indicator of potential deal flow within an industry.
A savvy investment banker may therefore front-run the market and reach out to mid-market companies in this space as potential add-on investments to new PE platforms.
For Executive Search firms
When a PE firm acquires a new platform company, there will likely be changes in the leadership at the portfolio company, almost certainly a new CFO. PE platform acquisitions are therefore an excellent signal for Executive Search firms to place senior level executives as candidates for the new portfolio company.
For portfolio company CFO roles, most private equity firms have a strong preference for candidates with relevant industry experience and prior CFO experience at a PE-backed portfolio company.
Accounting, Legal and Advisory firms
Platform investments signal potential further add-on investments. Each subsequent add-on requires accounting, legal and advisory work for due diligence, strategic planning, and post-acquisition services. Right after a PE investment into a new platform company is an ideal time for accounting firms, transaction lawyers, and management consulting firms to provide services to help frame the strategic map to grow the new platform investment.
Technology and Software providers
When a private equity firm acquires a new platform investment, the PE firm often performs a full technology audit. Part of this audit is a full review of the tech stack and implementation strategy. This is a good time for technology and software providers to become an integral part of the portfolio company’s technology upgrade. Subsequent add-on investments provide addition technology-related upgrades and integration projects.
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