As private equity deal flow across the U.S. remained strong in 2015, Huron Capital Partners stayed as busy as ever.
The Detroit-based private equity firm that invests nationally in the lower middle market closed on 19 acquisitions last year in 13 states — three of them in Michigan — and two in Canada. Three deals were new investments and 18 were add-on acquisitions for existing portfolio companies.
The volume of deals was the highest in Huron Capital’s 17 years. The firm, which since 1999 raised more than $1.1 billion in capital through four funds and invested in more than 100 companies, also recorded two exits during 2015.
Among the 2015 deals for Huron Capital was the May acquisition by portfolio company The XLerate Group of Schoolcraft-based Greater Kalamazoo Auto Auction. The deal was among the winners in the 2015 MiBiz M&A Deals and Dealmakers of the Year Awards.
“It was very active on a number of fronts,” said Huron Capital co-founder and Managing Partner Brian Demkowicz. “We’ve just been really busy.”
That’s also true for other private equity investors across the U.S.
PitchBook, which focuses on the middle market, counted 2,017 reported private equity deals last year for $369.7 billion across the nation. That’s two more transactions compared to the prior year and the best year in a decade for deal flow, although a steep decline from 2014’s $419 billion in deal value, according to PitchBook data.
Activity did trail off in the fourth quarter of 2015, with 224 deals for $34 billion, down from 264 deals for $43 billion in the third quarter and the lowest level since the second quarter of 2013, according to PitchBook.
In the lower middle market, where private equity firms based in Michigan tend to invest, PitchBook counted 683 deals for $27 billion across the country in 2015, which compares to 669 deals for $28 billion in 2014.
The decline in the value of overall middle-market investments comes off of a record year in 2014 and suggests “more normalization” of deal multiples, although “the top portion of the quality spectrum will continue to fetch inflated multiples via auctions,” according to a quarterly report from the Seattle-based PitchBook.
The Washington, D.C.-based Private Equity Growth Capital Council reported more than 3,500 deals at all levels in the U.S. economy last year for $632 billion. That compares to more than 3,800 deals in 2014 — the highest volume in a decade — for $634 billion.
The 2015 data affirm that U.S. private equity investing “is strong and only growing stronger,” said Mike Sommers, president and CEO of the Private Equity Growth Capital Council.
“We expect this positive momentum to carry on in 2016,” Sommers said.
John Pollock, managing director in the Grand Rapids office of LV2 Equity Partners LLC, sees a solid year ahead for private equity investing following a “good and strong” 2015.
LV2, which invests in manufacturers in the lower end of the middle market and primarily in the Midwest, typically looks at 90 to 130 prospects annually. The pipeline of investment prospects remains good, although activity did trail off toward the end of 2015, Pollock said.
“We’re still seeing consistent deal flow,” he said. “2016 is going to be a year very similar to 2015, barring some monumental macroeconomic things happening.”
Most recently, one of LV2’s portfolio companies — Wabash, Ind.-based Martin Yale Industries LLC, a maker of print finishing, office, and mailroom equipment — acquired and relocated a California machinery company.
The private equity activity coincides with a strong M&A market nationally. The market has been driven by firms that need to deploy the capital they’ve raised, readily available credit to finance deals, and business owners seeking to sell at a time of high demand from buyers and elevated valuations.
Huron Capital’s Demkowicz is hopeful that 2016 will go as well as 2015 for private equity, although some indicators such as a shaky stock market and declining economic confidence could contribute “to a more uncertain environment” that might affect deal flow.
In early 2016, he said, “things are definitely not as robust as they were in the fourth quarter.”
“We’re bracing for a tougher year,” Demkowicz said. “We’re more cautious. While we hope that deal flow will be as strong, we’re prepared and are making plans for if it’s not. It’s not dissuading us from being active and pursuing our plan, but we’re just taking those necessary precautions if in fact it does slow down.”