So far in 2015, buyout fundraising has experienced a significant drop off in comparison to the fundraising figures seen in 2013 and 2014, as explored in a previous blog. Using Preqin’s Fund Manager Profiles online service, this blog will take a closer look into the industry preferences of buyout firms currently managing at least one private equity buyout fund.
The industry most targeted by buyout firms is the industrial sector, including sub-sectors such as aerospace, construction, engineering, logistics, manufacturing, armaments, defence, distribution, intellectual property, shipping and transportation. This focus on the industrial sector likely stems from the higher number of well-established, mature companies that suit the nature of a buyout transaction. One of the most prominent fund managers active in the industrial sector is The Sterling Group, based in Houston, Texas. The firm makes equity investments in leveraged-buyout transactions of manufacturing, industrial services and distribution businesses headquartered in North America. Over the last 10 years the firm has raised over $2.5bn in capital and the firm’s latest fundraising effort, Sterling Group Partners IV, closed at just under $1.3bn in Q3 2015.
Closely following the industrials sector is the consumer discretionary and business services sectors, with 62% and 60% of buyout firms targeting these sectors respectively. The consumer discretionary vertical encompasses sub-sectors in which companies offer products and services directly to the consumer, such as restaurants, retail and leisure businesses. On the other hand, the business services sector is composed of companies that provide products or services to other businesses, such as insurance and outsourcing. Clean technology is in the investment preferences of only 21% of active buyout fund managers, as shown in the chart above. This sector contains fewer mature companies, with venture capital fund managers more likely to target the innovation and invention seen in such a new industry vertical.
Buyout firms have a tendency to target more established businesses such as those in the industrial, consumer discretionary and business services sectors. As other industries mature, it is likely that more buyout firms will consider investments in companies where a buyout will make more sense, be it due to more companies matching certain investment criteria, or the appearance of more hungry management teams ready to take a company in a new direction.