By: Dexter Braff
With all due respect, love, and admiration for those private equity investors that boost the fortunes of many an M&A market, I must admit that you sometimes perplex me.
You bring access to capital, management talent, disciplined strategic planning, and a Rolodex of inside-the-beltway contacts that can turn a seller’s second bite of the apple into one larger than the first.
But then you reveal how much of that access to capital is access to debt vs. equity.
And you finance the deal with a balance-sheet tipping load of debt to lever out a hundred or two extra basis points of ROI, but leaves your new-best-friend gasping for cash.
So imagine my delight to read in PitchBook that “debt use in
[the] USA remains at historic lows” due, in part, to the fact that “PE firms aren’t relying as much on financial engineering as they used to, looking instead to deploy more equity in deals to avoid overburdening portfolio companies with barely serviceable debt loads [emphasis added].”
The article goes on to say that other variables are in play, not the least of which is a lower-middle market leaning sample size.
But we’ll take what we can get.