As company valuations find their feet, carveouts are making up a greater portion of PE buyout deals, as seen this week with a middle-market PE firm acquiring a global manufacturer of dental instruments from NYSE-listed Steris.
Chicago-based HuFriedyGroup, a 116-year-old company, caught the eye of Peak Rock Capital, which agreed Thursday to pay $787.5 million for the business unit. The firm plans to grow the company, which it described in a release as occupying a resilient pocket of the healthcare space, through acquisitions.
According to PitchBook’s Q1 2024 US PE Breakdown, carveouts were a significant source for dealmaking, accounting for 12.6% of all buyout deals, bouncing back from 5.7% in Q4 2023. Transactions were prompted by a recovery in company valuation growth and GP optimism that a company’s non-core assets can serve as a lucrative platform addition to their portfolio.
When companies decide the timing is right, they shed off peripheral divisions of their businesses for financial optimization, while PE firms often seek to acquire these types of assets to serve as new platforms.
The majority of Q1 deals originated within the technology and B2B space, according to the report, and activity is expected to sustain in the second half of the year.
Notable Q1 deals included Broadcom selling its end-user computing division to KKR for $4 billion in February, as the provider of semiconductor and infrastructure software products moved to focus on its hybrid cloud infrastructure.
Despite the uptick in carveouts among PE buyout deals, the report noted the trend may plateau with a broader increase in other deal categories.
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