While deal-making is coming back into focus, U.S. private equity firms are in no rush to execute deals in what has become a bifurcated market.

Bolt-on deals to existing platform investments are expected to make up the first wave of deal-making. They are perceived to be easier to execute than platform deals as portfolio company management teams know their peers, and sellers could be enticed by the idea of being part of a larger firm with private equity backing.

Middle market-focused Vestar Capital Partners LLC, which closed its seventh buyout fund with $1.1 billion in capital commitments in February, is working on a number of potential bolt-on deals and is close to securing one. Co-President Norm Alpert said it is "certainly less busy" than it was before the coronavirus outbreak, but that "we aren't sitting on our hands."

Vestar has also modified its capabilities to recycle capital in one of its funds that has passed its new investment period to provide it with additional capital primarily for offensive purposes, Alpert said. "We see, better or worse, opportunities to take advantage of others' challenges and maybe make some smart tuck-in acquisitions and so forth."

Managers are also eyeing organic growth opportunities among businesses that have thrived during the crisis. Some of financial services-focused Lovell Minnick Partners LLC's technology platforms are in high demand because of their importance during lockdown, giving rise to the opportunity to adopt higher-level systems and digital marketing to pitch to clients, partner Jason Barg said. On bolt-ons, he added "you can get some smaller businesses into the fold here — having more scale resonates with businesses today."

Some private equity firms have also moved beyond their traditional investment strategies into growth capital — identifying businesses that were expanding before the coronavirus outbreak — and minority stake investments, which allow firms to deploy capital and potentially give owners an operating partner to help them through the uncertainty, Ethan Boothe, head of the U.S. private equity practice at advisory and accounting firm EisnerAmper LLP said.

With an abundance of dry powder, private equity firms "are looking to put that money to work in ways that they might not have traditionally done," he added.

Fork in the road

Managers noted a bifurcation in the market. High-quality businesses that saw positive activity and growth have and will continue to come to market and are expected to command high prices from buyers. Others have come to market with no option but to raise capital. Those that are able to remain in their current ownership structure "will probably stay put until their earnings turn around and they look more sellable," The Riverside Co. managing partner Peggy Roberts said.

The firm plans to focus on "industries we know, companies we might have already had relationships with over the years," she said. "In that sort of setting, you're going to see us, and I imagine other buyers would feel the same way, willing to work more quickly or more aggressively if needed," Roberts added.

Although Lovell Minnick is assessing opportunities, a couple of which are in advanced talks, Barg said it makes sense to meet management teams before completing deals. "When can that happen?" he said, adding that nobody has a crystal ball that shows when everyone will be able to travel again.

Although Vestar is looking at a number of opportunities, the firm is in no hurry to complete deals, Alpert said. "We have a couple of companies that are in a good position to perhaps consider doing something, but we're not in any particular rush to launch anything right now because it's just — why do it? Unless it's just, you have to or whatever. I mean, we're particularly patient folks at Vestar."