Rapid Evolution: How the Growth of Strategic Capital is Fueling a New Approach to Value Creation

Mid-hold equity solutions are allowing sponsors to extend the growth runways of performing portfolio companies to take advantage of time-sensitive opportunities. This maturing segment is becoming more widely adopted by GPs to drive growth and equity value creation.

BY KUMBER HUSAIN AND DANIEL GREEN, MANAGING DIRECTORS, ASC

Private equity general partners (GPs) are incredibly busy, although M&A volume might suggest sponsors aren’t as active as they were in 2021 and 2022. Their focus, however, has been on efforts to accelerate and enhance value creation within their existing portfolios.

The data bears this out. For one, the median hold period at exit continues to stretch longer, according to Pitchbook, and exceeded seven years based on exits completed in 2023. Moreover, the proportion of add-on acquisitions as a percentage of total investment activity reached 75%, and the volume of add-ons in the first half of 2024 was easily on pace to eclipse last year’s total, according to data from Pitchbook.

The market, to be sure, is a factor, but sponsors have shown they are willing to extend hold periods if they can continue to drive value from their best investments, and add-ons increasingly are becoming a key ingredient in the private equity playbook.

None of this should come as a surprise, as sponsors are increasingly looking inward to find conviction. While the economic and geopolitical backdrop play a role, another contributing factor is that GPs have never before had so many tools at their disposal to extend the growth runways of their existing investments or navigate the obstacles that often get in the way. In this sense, strategic capital solutions are facilitating mid-hold value creation efforts that 10 or even five years ago were not always available.

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