Private equity-to-private equity sales jump 44 percent as funds look to deploy "wall of cash"

PE-to-PE sales now account for 26 percent of all deals — up 19 percent from last year 44 percent increase in PE to PE sales year-on-year

London – The number of deals involving private equity (PE) firms selling UK companies to each other has jumped 44 percent in the past year from 59 to 85, shows research* from Mayer Brown, the global law firm.

Mayer Brown said PE houses are under pressure to deploy capital quickly as institutional investors seek returns from an asset class that has performed strongly in recent years. This has led to more PE houses doing deals between each other, as a way to complete deals quickly and with less friction. In many cases, negotiations are easier between PE houses as they understand the intricacies of how deals work better than outside buyers.

Mayer Brown's analysis shows the proportion of private-to-private deals within private equity as a whole rose to 26 percent in 2021, compared to 19 percent in 2020. These deals often involve smaller PE houses selling portfolio companies to their larger peers. Private equity funds often have their own timelines, investment goals and management philosophies, as a result they get involved with companies at different stages of their lifecycle, depending on their size and growth requirements. 

Lower mid-market houses tend to acquire companies at an earlier stage or during their growth period, where they need significant investment to reach their potential.  They then develop and refine a company’s business model and operations, before selling to a peer that invests in larger companies that may, for example, be able to unlock foreign markets for the relevant company.

James West, private equity partner in the Corporate & Securities practice at Mayer Brown, said: “Doing a deal with another private equity firm can be a lot easier than negotiating with a trade buyer, where it’s a completely different dynamic.

“There are usually more hoops corporates need to jump through to reach and approve a deal, and a lot more due diligence, particularly if they’re looking at synergies. Those factors can slow down deals significantly and make them less attractive to some PE vendors.

“PE funds have a wall of cash to deploy and are under pressure from their investors to deploy that money quickly. In some cases, PE firms might feel doing deals with their peers is a simpler solution than negotiating with non-PE buyers, even if the price is lower.”

Data from S&P has shown that private equity firms globally are currently sitting on $2.3 trillion in "dry powder", i.e. money that has been committed by investors but not allocated. This is up from just under $2 trillion in December 2020 and $1.6 trillion in December 2019.

Notable transactions between private equity firms in the past year include the online retailer Not on the High Street, which was sold by a group of venture capital funds to the mid-market firm Great Hill Partners, and the low-calorie ice cream maker Halo Foods from Nimbus Ventures to the mid-market US house Peak Rock Capital.

Deals between private equity firms jump 44 percent 

*Research based on analysis of Mergermarket data.