Private Equity Market Seen Consolidating at Increasingly Faster Pace

Triago sees private equity firms increasingly buying their peers, pointing to a record number of deals last year.

Illustration by II

Illustration by II

The private equity industry is consolidating at a faster pace as firms seek to expand their strategies and increase assets under management, according to new research from Triago.

Private equity firms have acquired their peers in more than 150 deals since 2005, Triago, a provider of private equity advisory services, said in a white paper Wednesday. Sixty-five percent of the deals were in the past five years, with a record of more than 25 in 2017.

The paper, entitled “M&A at the Gate: 30 years After the Barbarians,” says deal making between private equity firms is a sign that the market has grown up. Merging helps firms satisfy the diverse needs of limited partners, or the investors in private equity funds commonly referred to as LPs.

“The maturity of the private equity market, combined with the diversity of LP profiles and investment appetites, is the catalyst of consolidation,” Triago said in the paper. “Independence is no longer the Holy Grail for an investment manager when it comes to doing deals at the investment company level.”

Some of the major deals in recent years include Affiliated Managers Group’s $775 million acquisition of Pantheon Ventures in 2010, and Carlyle Group’s purchase of Alpinvest for $13.5 billion in 2011, according to the paper.

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Succession planning is also driving deal making among private equity firms, Triago said, with many offering to sell stakes to help provide an exit to aging executives.

“The increasing age of founding partners has created a need for liquidity that cannot always be fulfilled within the existing team,” the firm said in the paper.

Triago estimates that roughly half of the deals it has tracked were done because a firm wants to “enhance existing strategies.” The other half typically involved expanding asset classes to include those in which the firm had no expertise, such as private debt or real estate strategies.

Triago pointed to StepStone, a global private equity firm, and its ongoing strategy of acquiring smaller firms like Citigroup’s fund-of-funds and co-investment business in 2010. StepStone’s real estate business acquired Courtland Partners, another real estate investor, just this year.

Such deals increase assets under management and help retain talent, according to Triago. They also leverage brand power, building a name for firms, which improves its capital raising and investment prospects.

“Similarly to their portfolio companies, private equity firms will have to find ways to achieve long-term sustainable growth, retain and attract the best talent and successfully manage succession issues,” Triago said in the paper. “M&A is a useful and increasing accepted tool for achieving these ends.”