On April 23, 2025, Solomon Partners hosted its fourth-annual Business Services Summit, bringing together industry leaders from private equity and middle-market companies in the business services sector. The event featured 160+ one-on-one meetings, panel discussions, and networking opportunities for those in attendance. The panel discussions highlighted key insights from large-cap and middle-market sponsors on the qualities of what makes a consolidation platform attractive; and leaders in structured capital and private equity on alternative liquidity options in today’s market environment.
Setting a Higher Bar
Sponsors have been placing greater emphasis on asset quality over the past few years. Top takeaways from the panel included:
- Enhanced focus on data and reporting: Are companies reporting KPIs in a meaningful and uniform way to drive business strategy and decision-making? While a common ERP is important, it is more important to produce significant and actionable data in a timely manner.
- Clear integration strategy: While all companies and strategies are different, the ability to articulate why the whole is greater than the sum of its parts is critical.
- Consistent organic growth that demonstrates a clear value add and overall platform value: As platforms get larger, the importance of organic growth increases in proportion to add-on acquisitions. This view reflects the greater emphasis that public markets place on organic growth, as sponsors consider IPO exits for scaling companies.
Managing Liquidity in Today’s Market
With longer-than-average hold periods, the pressure for sponsors to return capital to limited partners (LPs) continues to grow. For a variety of reasons, including a bid-ask spread or the desire to retain ownership of a high-quality asset, sponsors are thinking through alternatives to a control sale as a way to provide liquidity to LPs. The panel focused on two paths in particular:
- Structured capital: Selling a minority structured equity stake allows a sponsor to realize liquidity, while still controlling and realizing the majority of upside in an asset. Structure takes many different forms yet generally provides for a minimum rate of return with some upside through conversion and/or warrants for the investor. Panelists included representatives from traditional private equity firms, who have added structured capital as an added offering, and “pure play” providers of structured capital. In addition to reviewing the merits and considerations of these investments, the panelists discussed the increasing popularity of the product and the accelerated number of firms playing in the space.
- Continuation vehicles: The panel also discussed continuation vehicles (CV) as an alternative to a sale. In a CV transaction, the sponsor sells the asset into a new special purpose entity. Existing LPs have the option to sell or retain their stake and roll-over into the CV, while new capital raised from outside secondary investors funds liquidity desires of existing LPs. When sponsors believe there is significant continued upside in a business and would like to hold it for longer than the traditional fund structure allows, CVs are frequently optioned. Our panelists discussed how the process requires significant work as much of the diligence and marketing sits with the sponsor, as opposed to the company incorporated into the CV.
Invested in the Market
At Solomon, we have deep industry expertise and experience working with Business Services clients. We are invested in helping our clients navigate the current market
