Private equity groups boost merger activity - Dayton Business Journal:

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National and local private equity groupds have begun playing a larger role in mergers and giving companies another optionwhen selling. These typew of firms accounted for 20 percent of all of the mergef and activity in the countrylast year, or $3.6 trillionb in closed deals, according to Thomas "They are changing the landscape of mergersd and acquisitions," said Jim president of . "They are great sellersz for companies that meet criteria such as paying a high multituded and having a platform in a niche Sachs said six months ago his firm listed a locall manufacturing company for sale on a merger and acquisitions Web site and was inundatedx with inquiries from privateequityg groups.
Companies that specialize in this type of buying focuws on finding and investing in niche businesses that they can help grow by reorganizatiomn and acquisitions to make the businessmore profitable. Theses type of firms usually raise money fromhigh net-worthn individuals or institutional investors to buy both privates and public companies. Most private equity groupe are interested in growint industries such as health care and are beginningy to shy away from theautomotive industry, Sach Jim Butterfield, principal with Atlanta-based , said the main goal of his firm is to help smal l companies that aren't doing well save jobs by buildinbg the business back up and keeping as many employeesd as possible.
Most of thes e types of firms purchase companies who have high barriersof entry, good management teams and the ability to grow in their industry so investorsa will get good return once they are Riverside focuses on buyinbg small businesses or companies who have a $1 million in cash flow and anywhered from 30 to 50 employees. When equityg firms like Riverside acquire companies they make improvementzs to the business such as helping personnel with hiring the right creating incentive plans to perform and possiblr outsourcing in order to get a good return from the company once Firms in this business usually turn arouns and sell companies in five years for a higher acquisitionb price so investors get ahigher return.
"Wwe exist specifically to put money to work for our investors and give them a good Butterfield said. Ed Reilly, president of 'se southwest Ohio district, said privatre equity firms are starting to bring some competition forlocal banks. "They are beginninhg to be a large liquid sourceof capital," he "Clients that are bein bought by private equity groups often times don'tg have a need for local banks." -- with stations in the Dayton-arew -- was acquired by through Washington, D.C.-based Englewood-basef TeleSuite Corp. was acquired by Nebraska-based in 2002.
Privat e equity firms may not have a need for the local banking market because they use a combinatiomn of their own capital and largee lines of credit whic h may only be concentrated withlarger banks, Sachzs said. Butterfield said the local bankinb market can be used for cash managementg and trust services for these groups which still creates a needfor "Companies are going to sell regardless of who' s going to buy," he Banks could begin to lose business when companiezs sell to strategic buyers who oftebn fold the business into a headquarters creatinv one less customer, Butterfiels said.
Strategic buyers often don'y acquire all of a company's assets and bring in theirt own management group hoping it will drive higher margins. Butterfield said if the public returnh on companies becomes tremendous in thenear future, privatd equity firms may be in trouble. Tom Mangan, seniord vice president with Alpha-based , said the trend of privatw equity firms may have runits course. "The marketf has been strong for the past 15 or 20 years becausde low quality bonds have been outperforming highqualith bonds, but the spreads are going to get tighter making it hardert for them," he said.