Private equity investments in Michigan grew in 2016 with an increase in both deals and the amount of capital invested.
Funds last year put $13.33 billion into 96 Michigan companies, according to a report from the Washington, D.C.-based American Investment Council that uses data from PitchBook.com. Michigan ranked 15th in the nation in 2016 for the amount invested in in-state companies from private equity funds and 13th in the number of investments.
The 2016 Michigan deal flow and investment compares with $12.29 billion in private equity invested in 85 companies in 2015, and $16.2 billion in 86 companies in 2014.
The year-to-year increase in private equity deals in Michigan provides another indicator of the state’s economic strength and shows how “people see a lot of opportunity there for investment,” said Martin Stein, the founder and managing director at Grand Rapids-based Blackford Capital.
“Companies generally are doing well and people feel more comfortable making investments when companies are doing well,” Stein said.
Blackford Capital operates two private equity funds: The Michigan Prosperity Fund that has nine portfolio companies based in the state and has deployed $50 million in capital; and a national fund with three companies and $20 million in capital deployed.
Nationally, private equity funds in 2016 invested $644.6 billion in 3,765 companies. That compares to the $625.8 billion in 3,770 companies for 2015, according to the American Investment Council report that ranks the top 20 states and congressional districts.
Part of the growth in private equity investments in Michigan and nationally stems from a greater awareness of private equity and an improving reputation for the industry.
“At least in West Michigan, private equity has become more well-known in recent years,” said Jeff Helminski, a managing partner at Auxo Investment Partners, which formed last fall.
The Grand Rapids-based Auxo targets middle-market companies in manufacturing, industrial, value-added distribution, business services and other industries with EBITDA between $1.5 million and $15 million. The firm will hold investments long-term — for five years or more — as it seeks to carve out a place in the market between traditional private equity and family offices.
M&A attorneys and business brokers in West Michigan say business owners selling their companies are much more open today to working a deal with a private equity buyer than they were in the past.
“We don’t hear as much now when sellers come in the door (that) ‘I’m never selling to private equity,’” said Tami Rua, managing partner at M&A firm NuVescor Group LLC in Grand Rapids. “We’re not hearing that as much now, which is great because the more options they’re open to the better.”
A private equity buyer was “rarely” an option three or four years ago for sellers represented by M&A attorney Jon Siebers of Rhoades McKee PC in Grand Rapids. In the first five months of 2017, Siebers has been involved in five transactions with private equity buyers, he said.
Part of the increased activity has come from firms moving down into the lower middle market where Siebers works. In other cases, the firms are trying to stake out a position within a specific industry such as insurance.
“There is so much undeployed capital with PE groups that PE groups have been forced to look downstream and down market for smaller companies to buy,” he said.
While private equity is more of an option today for sellers, Rua stresses that it’s not for everyone, nor is every available company an option for private equity funds, which often look to add to their existing portfolios.
“It has to make sense for what else they have in their portfolio. We don’t see them straying drastically from their platform companies,” Rua said.
Gretchen Perkins, a partner at Detroit-based Huron Capital that has an office in Grand Rapids, noted that none of the top 20 congressional districts listed in AIC report for private equity investments in 2016 are in Michigan. That’s an indication that Michigan investments were not as concentrated in a handful of large investments, she said.
“That means our money was spread out around the state. I think that’s good for the economy,” Perkins said.
Huron Capital made 20 acquisitions in 2016, including 16 add-on deals in 11 states involving eight platform companies.
Texas was the top state for private equity investments in 2016 in terms of dollar value with $79.8 billion invested in 413 companies, followed by California at $77.1 billion in 522 companies and Massachusetts with 152 companies for $76.6 billion.
Information technology (36 percent) and business services (24 percent) accounted for half of investments last year, followed by consumer products (14 percent) and energy (11 percent).