Daily News: March 24, 2015

CIT: Private Equity Gearing Up for Exits

A rising economy and the increased availability of financing continue to give middle market company founders, and their private equity partners, reason to sell their companies and take advantage of high exit multiples. Lenders and banks are eager to provide financing structures to make those deals come to fruition.

According to Tom Hobbis, co-head and managing director of CIT Sponsor Finance, a division of CIT Group, the following are current trends to watch for in the private equity sector in 2015:

  • Because the market is so aggressive right now, having the right price is very important.
  • Having financing arranged beforehand will help the chances of winning a transaction.
  • Limit the amount of contingencies.

Unitranche financing, which is becoming increasingly prevalent, is good for lenders who appreciate less leverage and for buyers who can take advantage of lower pricing. In the current environment, the all-in leverage available from a unitranche deal may be the same as what might previously have been available in the market four years ago.

Family and founder-owned companies benefit greatly from partnering with private equity firms. Whether they’re selling or growing their businesses, a private equity firm can provide needed expertise and capital. Within the middle market, family-owned businesses reinvesting in their companies alongside a private equity owner is becoming a prevalent trend.

2015 outlook is positive. It’s a sellers’ market. As long as the economy continues to improve and financing remains plentiful, stronger businesses will come to market for sale. Private equity firms may find it difficult to sell their companies in five years at multiples that are higher than they are now.

These are some of the observations expressed by Hobbis in the “2015 Private Equity Outlook,” the latest piece of market intelligence in the video series of in-depth executive Q&As.