Private equity firms play a major role in collecting funds and investing in companies with potential, injecting them with the capital to grow. After the holding period, PE backed companies are looking for a new owner. Therefore they present great opportunities for investment bankers and M&A professionals looking for high-quality deal flow.
Private equities offer numerous benefits to these companies and contribute to their growth and success. Historically, over a 20-year period, private equity produced average annual returns of 10.48%, as compared to 6.69% per year for small companies, and 5.91% for S&P 500.
This article lays out effective strategies on how to identify PE backed companies from any industry and market.
What is a private equity deal?
At its core, a private equity deal is a financial transaction in which a private equity firm invests capital into a privately held company. It involves the acquisition of a significant ownership stake in the target company, often with the goal of exerting operational or strategic influence. So, a PE firm not only invests but often becomes a catalyst for strategic and operational excellence within a target company.
Private equity deals can take various forms, including buyouts, venture capital investments, or growth capital infusions. The private equity firm becomes a shareholder and holds a controlling or substantial influence over the company's operations, management, and strategic decisions. They then work closely with the portfolio company's management to implement strategic and operational improvements. PE firms seek to increase the value of the target company over their investment period, typically three to seven years.
How to find private equity backed companies in specific industries?
Finding private equity-backed companies in specific sectors is crucial for investment bankers and M&A professionals. Why? Because these companies represent unique opportunities—whether you're scouting for potential acquisitions, seeking the ideal private equity buyer, or looking for new deal flow.
For corporate M&A professionals looking for strategic buys or investment bankers looking for new deals, the challenge isn't just in identifying any PE backed company; it's about pinpointing those ripe for transactions, particularly those at the 5-7 year mark of investment, where investors are often looking to exit.
Then again, for sell-side investment bankers, identifying PE-backed companies within your niche can be a valuable ace up your sleeve. It helps you understand which private equity firms might be interested in your client's business. This knowledge is not only valuable for direct transactions but also for strategizing on future deals.
Moreover, PE-backed companies are attractive to their peers and larger corporations seeking strategic acquisitions. These entities are particularly interested in companies nearing the end of their investment cycle, as they're more likely to be open to offers.
Traditional methods to find PE-backed firms
Traditional ways to spot PE portfolio companies include desktop research from industry registries and business news databases, asking brokers and industry networks, as well as utilizing social sales platforms such as LinkedIn Sales Navigator.
Online research
The first common technique is to conduct extensive online research, going through relevant private equity websites, industry news articles, and business intelligence platforms, such as Orbit and Crunchbase, to find information about companies that have received private equity funding.
Industry registries
Second approach focuses on complete manual research from industry registries and company lists. Some business platforms also sell downloadable lists of companies, often filtered by industry or financial metrics. While this can be a way to access a large number of potential targets, it requires significant effort from an analyst to go through the extensive list of companies and their ownership changes to find the ones with private equity backing.
Brokers & Advisors
Third traditional way is discussing with brokers and investment advisors who specialize in certain markets. They can deliver some information about the companies they have represented in past private equity transactions. Moreover, utilizing professional networks within the investment bank industry can prove to be successful in some cases in finding valuable knowledge on PE transactions.
Company databases
Leveraging company databases such as LinkedIn Sales Navigator is yet another traditional approach to search PE-backed companies. Although not built for this purpose, this tool allows users to search for companies based on specific criteria, also providing news and insights into potential targets.
Efficient AI-driven methods to find all PE backed companies in any niche
When using the traditional ways to search for PE backed companies, due to their nature, they intrinsically leave some parts of the markets uncovered. Therefore, it pays out to utilize some more advanced methods to cover the whole market and achieve more accurate search results.
Generative AI has a potential to generate value from increased productivity of 2.8 to 4.7 percent of banking industry’s annual revenues, McKinsey estimates. Economic value is created from its various industry applications, such as improved deal sourcing and data scraping globally.
AI significantly improves data search with natural language processing (NLP) which understands and interprets human language. This enables AI-powered search engines to process prompts effectively and find very relevant results. Machine learning ensures that the system improves its perception on what the user searches, and based on that the results become more rigorous with time. AI based search tools understand the context and meaning behind search prompts, which produces more contextually relevant search results.
Advanced data analytics and AI pose important benefits to investment analysts’ work. They make the search process quicker, with more market coverage. These tools find PE backed companies with greater accuracy, as they are specifically designed to include ownership data and other financial details.
Discover PE backed companies easier with Inven
Inven combines generative AI with a database that has data points from millions of company websites and other sources. This ensures accurate results according to your search criteria.
Here's how to find private equity backed companies from any niche:
- Select an example company that has a similar business model and sector as what you want to search.
- Describe the niche you're looking into in your own words, be as specific as you want. No need for industry codes.
- Choose filter: Private equity backed
As a result, you have a list of PE backed companies in your desired niche, such as healthcare, in any specific location. With the tool you can also search for specific private equity backed companies that have been active within the niche you're most interested in.
Inven’s tool will help analysts understand the market and can even assist in finding potential buyers for a business in a specific niche. PE-backed companies will be found in seconds with exportable lists of companies sorted based on ownership.
Inven finds companies worldwide. It currently has information on more than 23 million+ companies with 430 million+ contacts, and more data is being added each day.
The Power of Partnership: How Private Equity Fuels Innovation and Profitability
Private equity (PE) backing can be a significant growth catalyst for companies. In Europe, it is estimated that 25,000 companies are backed by private equity. PE owners combine capital for expansion and operational improvements with being active partners in the portfolio company's development. The majority of PE-backed businesses are small businesses, with fewer than 500 employees. Private equity firms' dry powder is particularly critical for smaller businesses or companies in innovative and risk intensive fields, which are not as attractive to conventional investors, according to EY.
Portfolio companies benefit from PE backing, as it boosts short term acquisition activity, which leads to improved valuations and margins on average (Hammer, Hindrichs & Schweizer, 2020). Research by the BCG highlights that PE-backed companies also invest more in innovation compared to non-PE backed firms. The increased focus on innovation and expansion can lead to improved offering, larger market share and greater profitability.
In 2024, the private equity market has seen increased activity due to the recovery in global M&A activity. Buyouts rose to USD 281bn, accounting for 36 % more compared to 1H23’s USD 205bn. The first half of 2024 saw four mega buyout deals worth more than USD 10bn. In addition, there was a 10% rise in exit volume to USD 168bn in 1H24, and more sponsors are seeking an exit. A great deal of privately held portfolio companies need refinancing, which gives space for new buyers. Almost half of exits in 2Q24 were secondary buyouts (42%). (Source: Mergermarket report, data correct as of 26-Jun-2024.)
Find your next deal: AI-Powered Search for PE Backed Companies
Finding private equity (PE) backed firms can be a challenging task, as it requires sifting through numerous data sources such as financial news, company databases, and registries. Traditional methods play a crucial role in understanding the market and tracking PE movement and trends. Brokers and advisors specializing in specific markets can offer valuable insights into past PE transactions. However, it is important for firms to complement these approaches with innovative techniques.
AI-based search tools have revolutionized the process by efficiently analyzing vast amounts of data with just a single click. These tools are continuously evolving to meet the evolving needs of investors to find PE-backed companies quickly. As a result, what used to take investment bankers a significant amount of time to review one list of companies can now be accomplished in the same timeframe across multiple countries and sectors.
- Read more: How to find company information.
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