You may have heard about the unprecedented level of “dry powder” in the market. In the M&A world, dry powder refers to the cash reserves businesses keep on hand to fund acquisitions or future business investments. In recent years, private equity firms have amassed record amounts of investor dollars, also known as dry powder. These firms are under considerable pressure to deploy those assets and generate returns for their investors.
The more dry powder there is in the market, the greater the pressure to use that money (i.e., acquire businesses). This pressure increases competition and drives up multiples. Additionally, it has created a wider buyer pool for businesses in the lower middle market, as private equity firms shift their focus down market to find new opportunities.
