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Small to midsized shops are looking to court PE

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Apr 19, 2024
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Illustration: Tiffany Herring/Axios

Small and midsized businesses in the U.S. are increasingly looking to tie-up with private equity.

Why it matters: Many private businesses — especially family-run ones — want to turn a page without courting a corporate takeover.

What they're saying: There's lots of generational change happening at small and midsized businesses, says Don McCree, vice chair and head of commercial banking at Citizens Financial Group.

  • The pandemic may have disrupted those timelines, but now is when "they're feeling good about their businesses, and they feel like they've weathered the storm," McCree tells Axios.
  • "People that want to transact are beginning to transact in some significant scale," he says, adding a logical place for these companies may be private equity.

Between the lines: Some management teams want to stay involved and may be concerned about a strategic merger, McCree says.

  • Private equity can offer more creative terms, and the right operating partner could do multiple acquisitions that could expand their business and leave their ownership position worth more.
  • "The whole private equity game has changed from one of financial engineering to [adding] a lot of operational value," McCree says.

By the numbers: About three-quarters of U.S. SMBs surveyed say they're looking at private equity as "a source of current or future partnership and funding," according to a Citizens report.

  • More than 530 SMB leaders in the U.S. participated in the survey.
  • Meanwhile, about 46% of PE firms expect higher deal volumes this year, compared with 19% expecting volume to decline, according to Citizens' Global M&A report in January.
  • Around 80% of PE firms plan to buy more than they did last year while just over 20% expect to sell more.
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