Buyers in today's private equity market are aggressively seeking quality assets, so much so that demand has eclipsed supply. In turn, business valuations remain exceptionally high and, in the case of private companies, can even be underreported by buyers due to the ways in which paid earnings multiples are calculated.
Speaking with The Hedge Fund Law Report, Michael Weinsier, co-leader of Pryor Cashman's Private Equity practice, said of this reality, "It is still very much a seller's market and the competition is fierce, so it is tough for sponsors to find quality businesses at a price point where their risk-adjusted target rates of return on invested capital are reasonable."
Weinsier, who represents a range of PE funds, family offices and other financial sponsors, as well as their portfolio companies, went on to note that one trend driving valuations is the increased use of competitive auctions: "Years ago, a deal had to be a decent size for it to warrant a competitive sale process managed by an investment banker. Now, even small businesses are routinely being sold through banker-managed auctions." As a result, PE sponsors are struggling more than ever to source deals on a proprietary basis to avoid that competitive process.
To read Weinsier's full analysis of current PE market trends, please click here.
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