The elephant in the boardroom: How PE invests in Republican-leaning states

July 18, 2016

If the American political punditry can agree on any one thing, it’s that the country is becoming increasingly polarized. The polls reflect it, too. More and more, it’s Democratic voters operating in one sphere and Republicans in another, and never the twain shall meet.

And much of the impetus is financial. As manufacturing jobs continue to disappear—and as the Republican Party gathers in Cleveland this week for its convention—many of the party’s rank and file seem to want little to do with the metropolitan, globalized world of finance.

Which got us wondering: Is the reverse true, too? How interested are investors in states where the Republican Party reigns? More specifically, how does recent private equity activity in states with Republican leanings compare with PE investment in the U.S. as a whole?

To answer those questions, we used the PitchBook Platform to look at activity in the 24 states that voted for Mitt Romney, the Republican candidate, during the 2012 presidential election. We looked at all deals from November 6, 2012—the date of the 2012 election—until today to see what trends turned up.

Overall, PE investors have a definite preference for blue states. More than two-thirds of all PE activity since the past election has taken place in states that voted for Barack Obama, a sample that includes major population centers like California and New York, which rank first and third in overall investment, respectively. 

PE deal count in red states

Source: The PitchBook Platform

On a year-by-year basis, PE ebbs and flows have been largely consistent regardless of a state’s political preferences. While investment in red states climbed 25% from 2013 to 2014 and dropped 1% from 2014 to 2015, activity in the U.S. as a whole trended almost exactly the same.

Sector breakdown in red states versus the U.S. as a whole

Perhaps the biggest area of differentiation between the red states and the U.S. as a whole is investment in the energy sector. While energy deals make up just 7.6% of all total American PE deals since November 2012, they account for a whopping 14.5% in states won by Romney—more than any other sector besides B2B and B2C. As one might expect, Texas is the primary driver, serving as the home to 61.9% of the red-state energy deals in the timeframe. Oklahoma (11.3%) is the only other state to top 10%.

PE activity by red state

Source: The PitchBook Platform

Since the 2012 election, Texas has also been the busiest red state (by far) for overall PE investment, serving as the home to more than one-third of all deals (34.3%). Next are two states from the Southeast, Georgia (10.9%) and North Carolina (8%), with Tennessee (5.7%) and Arizona (5.2%) finishing out the top five.

For the most part, the busiest PE investors in recently Republican states since Election Day 2012 mirrors the most active investors in the U.S. as a whole. ABRY Partners is at the top of the list, with 56 deals; Audax Group is in second, with 50, and KKR (47) and GTCR (46) follow closely behind. Considering all 50 states, ABRY, Audax and KKR all remain in the top four, joined by The Carlyle Group.

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