For advisors in search of a mandate, Mergermarket’s predictive likely-to-exit (LTE) algorithm can point them in the right direction.
Out of a universe of 16,760 financial sponsor-backed companies given an LTE score worldwide, 7,740 are based in North America.
Scores range from 0 to 100. The higher the score, the greater the likelihood of an exit in the next 12 to 24 months – be that through a sale, initial public offering, direct listing or a blank check merger.
Developed by data scientists, LTE is based on a machine-learning algorithm using 20 different inputs, including capital markets data from our sister product Dealogic and proprietary Mergermarket content. Those inputs include the number of Mergermarket articles mentioning a company is for sale over the last six months, the sponsor’s exit rate by region and sector, and how long the portfolio company has been held.
For this Dealspeak, we take a score of 50 or more as indicative of a near-term exit. Exactly 78 North American companies fit that category, amounting to 1% of the total. The cutoff is not binary, however – a score of 40 or more has previously indicated an above-average chance of an exit.
Sector power rankings
In which of North America’s sectors are the highest-scoring companies?
Perhaps unsurprisingly, tech is hottest. There are 2,042 North American tech firms in the LTE universe, of which 32 or 1.6% have a score of 50 or more. That is both the biggest number of LTE companies in any sector and among the largest proportion of high-scoring companies.
The other sectors with large numbers of companies have a much lower proportion scoring 50-plus. In industrials, 0.9% of 1,413 companies score in that higher range, followed by business services (0.4% of 1,172); consumer and retail (0.7% of 1,004), and healthcare (0.36% of 843).
Financial institutions and the communications, media and entertainment sector also have a similar proportion to tech in the 50-plus club – that is to say, 1.6% – but of a much smaller total (322 and 183, respectively).
The chart below shows the five top-scoring companies in each of the five sectors with the largest number of LTE companies.
Which private equity shops have the highest number of portfolio companies that are likely to exit in the near-to-medium term?
Thoma Bravo and Carlyle Group each have three North America-based companies with high LTE scores. Waud Capital Partners, TA Associates Management, and Great Hill Partners each have two platform companies the algorithm indicates are ripe for exit. All businesses have been held for three or more years and have scores of more than 50 (see chart below). Time will tell when they sell.
*All scores and data as of 4 October 2023
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