The Private Equity Shell Game: Why 31,000 Businesses Aren't Coming to Market

We need to talk about the elephant in the deal room.

If you've been wondering why high-quality inventory in the lower-middle market feels tighter than usual despite all the "baby boomer retirement tsunami" headlines, you aren't imagining things. The inventory is there. It just isn't hitting the open market.

While everyone is looking for the "For Sale" signs, Private Equity (PE) firms have quietly rewritten the playbook. They are now playing a massive game of keep-away with their best assets, and if you don't understand the rules, you're playing blind.

Forget the Wall Street jargon for a second. Here is what is actually happening.

Traditionally, a PE firm raises a fund, buys companies, improves them for 5-7 years, and then has to sell them to return cash to their investors. That deadline was the lifeblood of the M&A market. It guaranteed deal flow.

That guarantee is gone.

Instead of selling a great company to a strategic buyer or another PE firm, they are now moving that company from their "Old Fund" to a "New Fund" that they also manage. They essentially sell the company to themselves. The old investors get cashed out (if they want), new investors come in, and the PE firm keeps control of the asset for another 5-10 years.

They call it a "Continuation Fund." I call it hoarding the winners.

$100 Billion Projected Market Volume

31,000 Estimated Unsold PE-Backed Companies

50% Portion of Secondary Deals that are Continuation Funds

130+ New Continuation Funds Launched in 2024

This isn't just financial engineering; it fundamentally changes supply and demand in our industry. Here is the straight talk on how this hits your desk.

You might think this doesn't affect you. You'd be wrong.

With PE firms sitting on 31,000 unsold companies, they aren't as desperate to deploy capital into mediocre deals. They can afford to be picky because they can just reinvest in their own proven winners. This creates a "barbell" market: premium assets get insane valuations, while average businesses get ignored.

The Takeaway: If you are planning an exit, "good enough" isn't good enough anymore. You are competing against the PE firm's own portfolio for their attention and capital. Your preparation needs to be bulletproof.

If you feel like the "crown jewel" assets are vanishing, it's because they are. The best businesses—the ones with 20% EBITDA margins and recurring revenue—are being locked away in continuation vehicles rather than hitting the open market.

This creates artificial scarcity. You are now fighting over the scraps or paying a premium for the few quality assets that do escape. Individual buyers and search funds are getting squeezed the hardest, facing a valuation gap that is becoming a chasm.

Let's be honest about the commission check. When a $50M company moves from Fund A to Fund B internally, no business broker gets a success fee. That inventory is bypassing the traditional brokerage channel entirely.

If your entire business model relies on waiting for PE firms to divest, you are going to starve. The smart brokers are pivoting—offering valuation services for these internal transfers or becoming experts in "off-market" origination. The "post-and-pray" era is officially dead.

This is the new normal. Continuation funds now represent nearly 20% of all PE exits. The days of predictable 5-year churn are over. Whether you are buying or selling, you need a strategy that accounts for this artificial scarcity.

Don't navigate this blind.

The market has shifted beneath our feet. If you are a business owner wondering if you missed your window, or a buyer tired of seeing second-tier deal flow, let's have a real conversation about where the actual opportunities are hiding.

Reply to this email or call my office directly. Let's get to work.

Brett Vogeler
M&A Advisor | Author | Deal Maker

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