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Family offices heating up M&A competition

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Illustration: Annelise Capossela/Axios

Family offices are increasingly inserting themselves into the competitive M&A market, says Baker Tilly private equity leader Marc Chase.

The big picture: In North America, family offices have a collective AUM of about $182 billion, and globally, AUM is about $390 billion, according to a Campden Wealth and RBC Wealth Management report.

What they're saying: Family offices "have much more patient capital, they have much more long-term intentions, and that can be both a benefit and a detriment to private equity," Chase says.

  • A family that knows its investment thesis, will be around for at least 10 years, and will invest in the company over the long term can be attractive to sellers, Chase adds.

Driving the news: Deal volume for middle-market PE buyout activity fell about 35% to 40% from its 2021 Q4 peak and has leveled off since then, according to PitchBook.

Yes, but: The middle market's share of all PE buyouts is at 75.6%, on track for its best year to date, also per PitchBook.

Between the lines: Chase notes private equity hold times have gotten longer, with sponsors deploying more capital into portfolio companies to improve operations, reduce risk, and make the investment more attractive when the market picks up.

  • This means private equity firms will have a different calibration of how much to allocate for current investments, especially if this environment continues to present challenges, he notes.

Meanwhile, though private equity firms are getting deals done, many of them involve routing down more equity or full equity for a deal (see Sycamore's all-equity acquisition of Chico's for $1 billion).

  • Putting more equity down in general is done "in anticipation that when market rates recede and get to a more favorable debt environment, they can just refinance their capital out of the investment," Chase says.
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