The current environment is ideal for both buyers and sellers: private equity (PE) firms are flush with capital, and historically low interest rates have created an optimal buying climate.
The private equity world is trading at historic levels. After record growth in 2017, deal activity in private markets show no signs of cooling down. The current environment is ideal for both buyers and sellers: private equity (PE) firms are flush with capital, and historically low interest rates have created an optimal buying climate. The market is moving at breakneck speed – and that’s causing challenges and opportunities for those on the frontline.
To gain more insight into the current dealmaking landscape, and how corporates can compete or sell themselves to PE firms, Intralinks presented “The Rise of PE: Impact on Dealmaking” at Rosewood Sand Hill in Menlo Park, CA on July 12.
Moderator Robert Abbe, managing director, technology at William Blair, was joined by a world-class panel of highly experienced dealmakers for a captivating conversation:
• Neil Garfinkel, partner at Francisco Partners
• Bradley Thomas, head of M&A and integration at Juniper Networks
• Jonathan Kissane, global head of corporate development and M&A at Visa
• Tyler Sipprelle, vice president at Siris Capital
Bull market like no other
“This is absolutely one of the most robust deal environments I’ve seen in my career,” said Neil Garfinkel, a veteran dealmaker with 25 years of experience. “Technology companies are really doing well. Corporates are doing well enough that they’re free to focus on things that they might want to shed. So, for us and most private equity firms, it’s been just about the busiest time in our history in terms of putting money to work and finding deals. The challenge for us is finding deals we can win in such a competitive market.”
Garfinkel added that concentrating on specific technology segments is imperative to his company’s modus operandi: “We have chosen to really focus on a few core verticals where we feel we’ve got a thesis around long-term market growth or where we have executives, frankly, that we think can positively inflect an existing business. We also think that business fundamentals are going to be pretty strong for the next few years. So, despite the fact that pricing is at record highs, we think that we can still put money to work and achieve above-threshold returns.”
Unprecedented pace and velocity
The panelists concurred that dealmaking in PE is operating at warp speed. Deals that once took months are now truncated into as brief as a two-week timeframe. Adding to the current environment is the dilemma of repatriation of offshore cash, high prices, increased competition, little indemnification and the unbelievable pace of sales of private companies.
Bradley Thomas, of Juniper Networks, recognized how fast deals are now being done: “We run into lots of situations where the diligence time frame is under pressure to be compressed. As far as terms go, we also look at things like using reps and warranties insurance as a way to make our bid more attractive to the seller.”
“It’s fuel on the fire,” added Tyler Sipprelle. “The availability of debt is back to 2007 levels and credit documents are looser than I’ve seen them in my career.”
“At a public company, I have done a transaction in two weeks and that’s not something I look forward to repeating,” mused Jonathan Kissane. “It’s not the norm and we haven’t shifted our objective. We like to get to know our target a lot more closely before it kicks off in any way. Many times they’re already operating partners that we’ve had exposure to. No one wants to be rushed. No one wants to make a mistake. There’s competition out there … we don’t rely on it but [targets] will wait for us in some cases.”
Optimism will continue to fuel private equity for the foreseeable future. In this high-stakes atmosphere, where demand has eclipsed supply, deals are being done in record time and risk is at an all-time high. Once the deal is executed, dealmakers who want to win need to be nimble and swiftly enact operational processes so they can start delivering value to investors.
The environment is hot but not likely to overheat anytime soon.