Private Equity Bidding Wars: When Capital-rich Funds Compete, Intangibles Win the Deal

Also Private Equity Funds are getting hot now-a-days. Valuation of transactions has become important.

With so much money pouring into private equity funds, competitors for deals are able to match one another easily when it comes to price. Clearly, valuation remains the most important part of any transaction, but in today's capital-soaked private equity environment, bidders must also come up with other, less tangible ways to set themselves apart.

Bob Frost, a managing director at Piper Jaffray who specializes in advising clients in middle-market mergers and acquisition transactions, says bidders compete on three elements of every deal: value, timing and certainty.

"Value is value, and people have become very aggressive [about it], particularly for high quality assets," he says. "As for timing and certainty, that's probably where firms can differentiate themselves at the margin. We certainly are seeing an environment where you can differentiate yourself in the auction process by putting yourself in a position to move very quickly and create a timeline for the seller that fundamentally gets them to a close more quickly."

To do that, he says, companies need to pull together enough resources to front-load much of the due diligence process. To the seller, that translates into greater certainty. "Sellers are focused on making sure they move forward with parties that they are highly confindent will close the deal," says Frost.

He adds that industry expertise and specific experience in the sector, or related sectors, along with a private equity firm's track record, also can lead to raising a seller's comfort level with an individual bidder. "In an auction environment, often it's the case that sellers are looking at values that are comparable, and they're really trying to pick a partner based on their understanding of the business and their understanding of the risks."