This year has been all about add-ons for private equity firms and the trend looks set to continue into 2023. As debt markets have tightened and exit valuations have dropped, the focus for many firms has turned to existing portfolios; how to shore up current positions, but also maximise valuations and market share - in many cases by taking advantage of bolt-on acquisitions.
As of Q3 of 2022, add-ons have accounted for a massive 77.9% of this year's total buyout deals, according to Pitchbook data – that is the highest ever recorded. Investors, reluctant or unable to take out large amounts of debt for platform deals, have instead focused on the lower end of the market, where valuations are lower and the valuation disconnect between buyer and seller is usually less, giving rich opportunities for successful buy and build.
Macro conditions are also forcing the hand of some venture-backed companies, who, unable to raise additional capital, are now looking to sell. Furthermore, some markets are ripe for consolidation; accountancy, IFAs, testing and inspections, and building services, to name just a few. Now is the perfect moment to take advantage.
Yet, time is of the essence to secure the right deals at the right price, and in a highly competitive market, origination is a constant challenge. An early introduction from a trusted source is essential, and any firm that can find an alternative route to decision-makers will be at an advantage.
This is where Drax’s deal advisory team can help – firstly with identifying and a shortlist of targets, but also making introductions, and placing ‘deal hunters’ to support deal sourcing.
A shortcut to transaction propensity
The Leadership Dynamics platform enables Drax to search a rich database of businesses, filtering by characteristics such as sector, business size, and geography, to identify and shortlist potential acquisition targets. We also offer a unique transaction propensity algorithm, which analyses key business criteria to predict which are ready to be acquired. For example, have they recently changed their registered address, reduced the number of shareholders, or hired a new auditor? By analysing these signals, the algorithm helps investors to prioritise their top targets and to build a qualified list ranked by predictability.
Making introductions
With over 20 years of placing leaders within European private equity-backed businesses, Drax is one of the most networked companies in the space. This makes us uniquely placed to scope out potential acquisition targets and make confidential, informal introductions.
Sourcing deal hunters
We can also assist with identifying and making introductions to deal advisors and deal hunters to support the deal-sourcing process. Our extensive network of high-growth CEOs and Non-Executive Directors across the spectrum of industries means that we can identify individuals with the right domain expertise, knowledge, and connections, to help you get a foot in the door - and eventually close the deal.
James Fassnidge
Partner, Pre-Deal
JF@draxexecutive.com
