Written by Jared Hershberg
Competition for a limited number of quality assets will continue to drive outsized valuations. This is due to a number of factors, including the return of strategic buyers to the market, sponsors sitting on ample dry powder and facing the end of investment periods, limited opportunities to deploy capital. In this environment, sellers are able to demand, and receive, a number of friendly terms, including public company-type indemnities.
Fundraising remains extremely competitive as large LPs continue to consolidate the number of funds they invest with, and pension funds, sovereign wealth funds and other asset managers that have long been the foundation of private equity funds continue to push sponsors for favorable rights in the form of co-investment opportunities and fee breaks. In order to capture these shrinking LP dollars, sponsors are being forced to grant LPs these rights on an ever-increasing basis.
Given the high multiples in the market, sponsors continue to focus on add-on acquisitions for existing platform investments. The number of add-on transactions in 2014 – over 1,200 – set a record, and 2015 looks to continue this trend.
Alternative Investment Strategies
Sponsors continue to seek alternative methods to deploy capital that would not otherwise be part of their investment strategy. Such alternative strategies include taking minority positions rather than control positions in companies, investing in growth-equity companies based on a venture capital-type investment model, and seeking higher returns through the acquisition of distressed assets.
Jared Hershberg is a partner in Winston & Strawn LLP’ corporate department, and whose practice focuses on mergers and acquisitions, private equity investments, private investment funds, and general company representation.