Introduction to Private Equity (PE)
You must include private equity-funded businesses in your strategic and business planning because they have a significant presence in your industry and are highly motivated to grow rapidly.
Over the past decade, more than 11,000 manufacturers in the U.S. have partnered with private equity, and PE firms have invested over $1.4 trillion in that same timeframe. Key investment areas include industrial parts, machinery, agricultural equipment, and, more recently, aftermarket service companies. As a result, either your company has a PE investment, competes with companies with PE investments, or both.
Why is Private Equity Investment Important?
A private equity (PE) business utilizes funds invested by individuals who can afford to take significant risks. The firm typically employs two types of professionals: those specializing in identifying, valuing, and acquiring all or part of businesses, and those with substantial experience operating businesses similar to those in the PE’s portfolio. Regardless of their team, PE professionals are generally well-educated, possess considerable business experience, excel in communication, and are highly motivated by the prospect of earning substantial payouts when a deal closes.
PE firms make two types of investments: companies with the potential to triple their value within a short term (3 to 7 years) before either being sold to a larger company or going through the initial public offering (IPO) process, or businesses that have the potential to grow into unicorns (a company valued at over US$1 billion that is privately owned and not listed on a share market).
This means that the external leaders in a PE-backed firm will do almost anything legal and ethical to achieve their ultimate payout. Of course, the PE firm will employ highly skilled operational people who are comfortable working closely with and taking advice from the PE firm, and who are also motivated by their bonus when the IPO is finally floated. In other words, this combination operates like a tech start-up. These teams are the ones to beat in the race for the highest valuation in any specific category.
Buyers are Refocusing from Products to the Aftermarket
PMMI, the Association for Packaging and Processing Technologies, recently published an insightful study, “2025 Aftermarket Parts & Services. Here are the key takeaways from the report:
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98% of end users expect their aftermarket budgets to expand or remain stable in 2025.
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75% of end users identified immediate parts availability and fast lead times as their top expectations.
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94% of OEMs predict growth in their aftermarket services business over the next three years.
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Remote services, predictive maintenance, and proactive obsolescence planning are becoming non-negotiable to remain competitive.
“The data is clear: Aftermarket services are no longer secondary — they are critical to business success,” says Jorge Izquierdo, vice president, market development, PMMI. “Companies that align their aftermarket strategies with customer needs today will be tomorrow’s industry leaders.”
The aftermarket is an area where PE firms are actively investing!
Conclusion
What if you work in or own a family-owned business? Or even a privately held partnership? You are aware of your most significant competitor: the PE-led business. You understand how challenging it will be to surpass them for a high valuation. You can only attempt to replicate what PE-owned enterprises do, with less money and fewer skilled resources. It is a tough battle, but that is the hand you have been dealt
Call to Action
Whether you work in a PE-owned business or not, you must motivate yourself and your team to show up every day and strive to be the best in your chosen vertical, as that is what your competitors are doing.
Related reading
- How to Improve a Dealership’s Service Absorption Rate
- Recent Examples of a Changing OEM-Dealer Relationship
About Middlesex Consulting
At Middlesex Consulting, we assist aftermarket leaders in creating and implementing plans for service profit improvement and effectiveness while reducing customer churn. If you want to learn more about how we can help your organization compete effectively with PE-funded businesses, do not hesitate to contact us or check our blog. By the way, the blog search engine works very well.