The Takeaway: A Q&A With Justin Abelow on Financial Sponsors M&A Activity

What is the mood today among private equity firms?

Speaking with private equity firms today is like speaking with star athletes who have been sitting on the sidelines with an injury and are chomping at the bit to get back into the big game. They have about $1.4 trillion of dry powder to put to work (in the U.S. alone) on the buyside. In some ways, more importantly, they have more than 11,000 portfolio companies in the U.S.—as many as 28,000 globally—waiting to be monetized on the sellside. These are high-performing people who don’t like not getting things done; they are ready to hit the field running.   

Is the financing market a friend or a foe to the private equity market today?

The financing market is really a system of different but linked markets, and in aggregate, they are supportive of new deal activity today and becoming more so by the week. The past few years saw direct lenders take enormous market share from the broadly syndicated loan market, but don’t count out all of those smart and creative people at the big banks. They’ve been fighting back over the past few months to claw back some of that lost market share, creating a sort of bidding war between two different lending mechanisms, with each one trying to adopt—and adapt—some of the key strengths of their rival. As a result, direct lending is becoming less expensive and BDLs are becoming more flexible, occurrences with positive implications for the deal market.  

Given that, how can companies—and Houlihan Lokey as their advisor—best attract the right private equity investor?

The role of a sellside advisor like Houlihan Lokey is, at its essence, telling the right story, the right way, to the right audience and then creating and enforcing the right bidding rules to optimize values. One of the keys to our success has been going narrower but deeper in terms of how our industry expertise is structured, focusing on evermore specialized slices of the market. This has enabled us to tell more nuanced stories than some of our competitors and to make sure that each sale isn’t just an isolated “transactional moment” but rather an organic part of an ongoing dialogue between Houlihan Lokey and a buyer.

And how do sellers, in today’s market, evaluate buyers?

Our sellside clients have become a step function more sophisticated in this way over the past few years. They look to us—with our large in-market dataset—not only for unique insights into how buyers behave in transactions but also how they behave in the boardroom and as co-investors. Doing good deals is plenty of fun and rewarding for all concerned. But brokering a lasting and successful marriage between a company and its new owner is even more fun and more powerful.  

So, what’s The Takeaway?

In a reanimated and increasingly crowded market, relationships will be key in clearing out clutter and achieving outstanding results.