Changing the Private Equity Playbook: When PE is a Strategic Buyer

Private Equity on the Prowl



Even as the Fed continues to raise interest rates, Private Equity (PE) firms are still benefiting from historically low, Covid-era interest rates, as well as record fundraising – last year fundraising in global private markets grew 20% to reach $1.2tn. That’s a lot of dry power to be put to work. 

Unlike Venture Capital (VC) firms who usually don’t buy out entire companies, PE sometimes referred to as ‘Buyout Firms’ often look to acquire entire companies. This gives PE the advantage of having controlling interest in management and/or operational decisions. PE buyouts often happen as leveraged buyouts, in which only a fraction of the capital requirements are put up in cash – the remainder is secured in loans against the acquiring company’s assets. 

Deployable Capital is Ready and Waiting

Private equity generated $512 billion in buy out deal value during the first half of 2022 and while PE has been known for huge deals, increasingly private equity firms are targeting smaller, family businesses with the potential for higher median ROI. 

Inflation-recession cycles can be short lived and research suggests that investing during a recession is a smart and valuable investment. If PE sees the current market through the lens of growing profits, share and firm value, the current moment makes for an exceptional time to put capital to work, especially as debt becomes more expensive. 

When is Private Equity a Strategic Buyer?

When SEA represents our clients on the sell side, and private equity is on the buy side, a PE firm is a technically proficient buyer that is usually looking to acquire 100% of the company. 

In some instances, the acquiring PE firm can use funds from a company it already owns to purchase and develop synergistic relationships with said target company. Strategic Buyers are often similar to the seller they find – this includes the seller’s markets or geography, processes, services or products additive to their strategic holding. Their sights are set on future returns and therefore, they’re willing to pay a higher price as a “strategic buyer,” acquiring, reinvesting to grow the company before exiting in any where from 5 years to 15+ years.

When PE is a strategic buyer their focus relies on synergies and integration capabilities, while financial buyers look to make cash straight out of the gate with a focus on earnings growth. A strategic buyer pays more because they see greater ROI down the road, while having access to deeper resources and funding. 

Choose the Right Deal Partner

When it comes time to choosing the right deal partner, it’s obvious that money talks. However, it’s critical to understand that a deal aligned with culture and values has the greatest potential to satisfy both buyer and seller. 

When PE works with an investment bank as a strategic buyer, financial leverage is key. On occasion, an owner/CEO might stay on as minority stakeholder to help during cultural integration but PE still has the flexibility to offer an all-cash or leveraged buyout when the time comes. 

Even though Private Equity has been changing their playbook – with increased interest in smaller strategic targets, and value-creation – the game remains the same. 



When it comes time to navigate the next chapter of your entrepreneurial journey, Strategic Exit Advisors (SEA) has the resources and experience to help you. Call us anytime (215) 489-8881 or schedule a conversation here.