Private Equity Players

Private equity firms are also suiting up for larger acquisitions. “In the past, the bigger deals often went to strategic buyers because they were in a position to offer more money than the private equity groups were,” Murphy says. “Now private equity groups have all kinds of money, and they can afford to get the bigger deals that would have gone to strategic buyers.”

Private equity groups are also increasingly exiting investments by selling companies to other private equity groups. Improving a company and then selling it to another firm in its industry group was once a typical exit strategy for a private equity group. Now, private equity buyers often have the cash to outbid those strategic buyers.

“We’re seeing many deals that go from private equity group to private equity group,” Monroe says. “One reason is that they’ve held the deal long enough, and they let someone else play with it a while. Or there’s still some ability to continue to grow the company, and the first private equity group has just lost patience. Or they just change the marketplace, with a small private equity group selling to a medium or large private equity group.”

More private equity firms are specializing in particular industries or geographic areas. Minneapolis-based Stone Arch Capital, for instance, buys mostly Midwestern businesses in consumer products, food manufacturing and distribution, industrial manufacturing, and business services, says Stone Arch partner Charlie Lannin.

At Minneapolis-based private equity firm Goldner Hawn Johnson & Morrison, Inc., acquisitions are typically Midwestern firms ranging from $100 million to $400 million in value. “For the last four years we’ve been focused on an explicit strategy,” says Michael Sweeney, the firm’s managing partner, adding that he feels firms need a niche in order to do well.