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Private Equity – Acquisition Criteria Metrics

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Although this is an inexact science, current PE deal structures appear to be about 50% equity

Andy Jones

11 Mar 2019

We have previously reported that private equity, as an industry, is moving down market, increasingly investing in smaller deals. The question is, what company size ranges attract PE firms? In other words, how small, how big and are there any sweet spots in terms of preferred portfolio company size for new platform acquisitions?

Private Equity Info blog, Andy Jones, March 08, 2019

The Data

Compiling data from Private Equity Info, the charts below show the platform acquisition criteria metrics for the private equity firms in our database.

To simplify, each chart shows the minimum requirements for each metric (for example, minimum revenue, min EBITDA, etc.). We also have data on the maximum range for each metric, but I will group those together for a later study. In other words, this study is about the minimum deal size requirements for private equity firms.

To be clear, this data is not based on transaction comps, but on the stated, desired range for platformacquisitions. (Note: we only record the size preferences for platform investments because there are often no minimums for add-on investments).

Minimum Revenue

  • 60% of PE firms will look at deals with revenue less than $10 million.
  • 88% of PE firms will look at deals with revenue less than $25 million.
Private Equity Acquisition Criteria - Min Revenue

Minimum EBITDA

  • 78% of PE firms will look at deals with EBITDA less than $3 million.
  • 95% of PE firms will look at deals with EBITDA less than $5 million.
Private Equity Acquisition Criteria - Min EBITDA

Minimum Enterprise Value

  • 49% of PE firms will look at deals with Enterprise Values less than $10 million.
  • 80% of PE firms will look at deals with Enterprise Values less than $25 million.
Private Equity Acquisition Criteria - Min Enterprise Value

Minimum Equity

  • 66% of PE firms will write an equity check for less than $10 million.
  • 81% of PE firms will write an equity check for less than $20 million.
Private Equity Acquisition Criteria - Min Equity Investment

Capital Structure

Also, of notable interest is the MEDIAN of the ratio (min equity) / (min EV) = 0.5.

Interpretation – this is a proxy for the percentage of equity PE firms now place into their capital structure upon initial acquisition of a new platform company. Although this is an inexact science, current PE deal structures appear to be about 50% equity. This seems to corroborate with transaction comps data studies we have seen recently.