The Pulse of Private Equity – 4/27/2015

The Decline of Platform Buyouts

We’ve talked previous about the decline of platform buyouts, as add-ons rise and competition from strategic acquirers makes platform targets more expensive from a valuation perspective. While that’s still undoubtedly true, it’s worth pointing out that many platform acquisitions are still happening, due in large part to some changes in strategy on the part of PE. Today, many of the platform buyouts that are happening are being prepared for months in advance, specifically add-on strategies. Platforms are being targeted with multiple add-on targets waiting in the wings. PE firms, with mountains of dry powder, need to continue investing, but are doing so with much more acquisitive preparation today. It’s not uncommon to see platform announcements followed closely by add-on announcements, sometimes with two or three companies already prepared to be rolled up.

We expect to see more of this in 2015, as valuations are likely to remain high for the foreseeable future.