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How Private Equity Firms Can Win At Mergers and Acquisitions


A major challenge for private equity (PE) is to determine when to hold and when to fold—PE firms need to weigh the advantages of selling at any given point with the potential that a portfolio company will increase its valuation a year or two down the line. When done well, this places PE firms in a position to win.

Private Equity vs. Venture Capital: How PE Stacks Up

Unlike venture capital (VC) firms (which invest knowing some of their companies will win big and others will flop), PE firms typically opt for companies that have historically proven their worth, so they can more easily avoid the total flops that VCs routinely have to deal with. Of course, they also rarely experience the booming successes—but their portfolios are instead designed for steady growth, with substantially less risk than VCs.

Further, unlike the startups that VCs tend to favor, the companies PE firms invest in can often be turned around fairly quickly. This allows the firm to achieve a good internal rate of return (IRR), which is often one of its primary selling points with investors.

Mergers and Acquisitions: A Tool for Growth

Some of the primary tools PE firms have in their toolbox when working to grow a portfolio company are mergers and acquisitions. Mergers and acquisitions allow the PE firm to add complementary products or services to a portfolio company, creating a stronger and more profitable company in the process.

That may, in turn, allow them to achieve a higher valuation for the new, integrated company with a fairly quick turnaround.

The startups that VCs invest in are rarely in a position to acquire or merge with another company right away. They are more likely to be the company sold as an add-on to a larger, entrenched player in the market.

And unlike public or private companies during mergers and acquisitions, PE funds generally have many investors and a wide pool of funds, allowing them to be exceptionally strategic about mergers and acquisitions.

Mergers and acquisitions can help PE firms that properly plan their exit to win big in business today.