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CIT: Private Equity Gearing up for Exits

March 24, 2015, 07:26 AM
Filed Under: Industry News

A rising economy and the increased availability of financing continue to give middle market company founders, and their private equity partners, reason to sell their companies and take advantage of high exit multiples. Lenders and banks are eager to provide financing structures to make those deals come to fruition. These are some of the observations expressed by Tom Hobbis, Co-Head and Managing Director of CIT Sponsor Finance, a division of CIT Group Inc., a leading provider of commercial lending and leasing services, in the “2015 Private Equity Outlook”, the latest piece of market intelligence in the CIT Executive Insights video series of in-depth executive Q&As.

“The rebounding economy is creating a scenario where now is an ideal time for owners and private equity firms to sell,” said Hobbis. “Because of the availability of liquidity and lenders’ eagerness to lend, owners and private equity firms may not see exit multiples like this for some time if they sit on their hands and wait.”

According to Hobbis, the following are current trends to watch for in the private equity sector in 2015.

  • Three Important Factors to Consider to Get an Offer Price to Buy: First, because the market is so aggressive right now, having the right price is very important. Second, having financing arranged beforehand will help your chances of winning a transaction. Third, limit the amount of contingencies.
  • Unitranche Financing Increasingly Prevalent: This single tranche structure is good for lenders who appreciate less leverage and for buyers who can take advantage of lower pricing. In the current environment, the all-in leverage available from a unitranche deal may be the same as what might previously have been available in the market four years ago.
  • Family and Founder-Owned Companies Benefit Greatly from Partnering with Private Equity Firms: Whether they’re selling or growing their businesses, a private equity firm can provide needed expertise and capital. Within the middle market, family-owned businesses reinvesting in their companies alongside a private equity owner is becoming a prevalent trend.
  • 2015 Outlook Is Positive: It’s a sellers’ market. As long as the economy continues to improve and financing remains plentiful, stronger businesses will come to market for sale. Private equity firms may find it difficult to sell their companies in five years at multiples that are higher than they are now.

According to the Private Equity Growth Capital Council, there are more than 3,300 private equity firms in the United States that own more than 11,000 businesses, which employ roughly 7.5 million people.

Founded in 1908, CIT is a financial holding company with more than $35 billion in financing and leasing assets. It provides financing, leasing and advisory services to its clients and their customers across more than 30 industries.

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