Time flies for private equity firms. Sponsors are facing mounting pressure to get deals done more quickly, says Christian Bullitt of LLR Partners. As a result, dealmakers may have noticed a change of pace in the way transactions are finalized throughout 2014. LLR, a Philadelphia-based firm that closed its fourth fund with $950 million in committed capital earlier this year, is feeling the rush. Speed is a factor, Bullitt adds, predicting that 2015 will see even higher prices and more atypical behavior on the part of rival dealmakers than ever before. (See video below.)
What trends have you seen in 2014?
In order to get exclusivity, people are offering limited reps and warranties. They're also offering to close in very truncated periods of time. I'm seeing just all sorts of concessions that, in unfrothy markets, they wouldn't do otherwise.
Is there more pressure on private equity firms to compete with strategic buyers?
Absolutely. There's just a lot of money out there. Both from the strategics as well as private equity funds. But we're seeing the private equity funds often outbidding the strategics. And the funds have as much pressure, if not more pressure, to put capital to work. And they can move faster.
Sometimes strategics will try to get to a process sooner, but if it comes to a process, sometimes they'll say, "You know what, we don't have the ability to move as quickly as a private equity firm, nor do we want to close as quickly as they do."
Is that because PE loves the risk whereas strategic buyers are more risk averse?
PE funds have a time limit. They have the clock ticking on them all the time, and they need to put that capital to work. And so you can sit on the sidelines for a certain amount of time and say that you're being diligent.
But after a while, that clock is still ticking. And you need to put that cash to work. And so at some point they say they're going to figure out any way they can to do that. And so sometimes they'll surround a deal as much as they can, put as many resources to it, and end up having to pay that extra turn or two turns to lock that deal up. Then they'll buy down that multiple in the first year. So whether that's doing three or four add-ons the first year alone, surrounding it with as many people as they can, to add as much value to it. But in order to gain entry to it, they're going to have to pay up.
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Corrected November 20, 2014 at 8:50AM: 3839283061001