Private equity doesn’t chase headlines—it hunts in silence.
Armed with over $2.5 trillion in dry powder (Moonfare, May 2025), PE firms are scanning the market for overlooked opportunities. At the same time, a new wave of activist campaigns is hitting companies with soft margins, lazy capital allocation, or underperforming business lines. The market may not see it coming, but smart money already has. This process isn’t about guesswork. There are real signals that show when a company is moving from forgotten to target. I have spent three decades studying these patterns, and when three or more appear simultaneously, the playbook begins to take shape. If your company meets a few of these criteria, it might already be under consideration for a buyout. Here are the key factors to consider and the potential timeline for a buyout.
The first thing private equity looks for is simple: boring, dependable cash flow trading at a discount. If a company consistently generates EBITDA and trades at a multiple under 10x, it’s a target. Especially if that revenue is sticky, think of long-term contracts, essential services, or subscription-like models. The public market often overlooks these businesses. But the private market sees something different: a stable cash engine that can be leveraged, optimized, and rerated. Waste management, healthcare services, and packaging are textbook examples. These aren’t flashy names. They are often overlooked and underappreciated, despite their obvious presence. But for smart capital, that’s exactly the point. If the earnings are reliable and the valuation is low, the setup is already in motion.
The next flag is underperformance. Underperformance is particularly concerning when compared to peers. Whether it’s lagging margins, poor return on invested capital, or a string of missed expectations, it signals operational slack. And activists love slack businesses. They don’t shy away from weakness; they see a value gap begging to be closed. Sometimes the whole business is dragging, but more often, it’s a conglomerate problem: strong segments buried under bloated cost structures or legacy units. That’s exactly what made (MMM) a target: a solid industrial core overshadowed by litigation and noise, ripe for a breakup. In this game, underperformance isn’t just a problem. It’s an opportunity for those ready to force the change the market has ignored.
Private equity loves a fragmented industry because fragmentation means opportunity. When no single player dominates and the top five control less than 50% of the market, it’s ripe for consolidation. That’s where PE firms go to work: buy the best-run operators, bolt on smaller competitors, and drive scale advantages the market hasn’t priced in. You’ll see it in aggregates, dental, logistics, pet care, and even regional financials. In these markets, the playbook is simple: become the acquirer or get acquired. Either path leads to a re-rating. For PE, fragmentation isn’t chaos. PE is ready to enforce its structure and extract its alpha.
Hard assets are a magnet for private equity. When a company owns valuable real estate or infrastructure, its stock often trades below the true value of these underlying assets, especially if the company’s earnings profile appears average. But PE firms know better. They don’t just buy the business; they also unlock the balance sheet. Sale-leasebacks are the classic move: monetize the property, keep operations running, and extract capital without touching the income statement. This is why casual dining chains like (EAT) and (BJRI) keep popping up as targets: they sit on prime real estate, which the market rarely values correctly. The takeaway? If your company occupies space that others rent, and the market fails to place a value on it, someone else will.
New leadership in a company is never just a cosmetic thing, it’s often the start of structural change. A newly appointed leader usually comes with a fresh look and a mandate: cut costs, review the portfolio, and consider bold moves. Smart money watches occupy space that others rent, and the market fails to place a value on fitness for transformation. Board turnover is another tell. Whether it’s activist pressure or a shift in a strategic direction, new directors often bring new agendas. If you start hearing phrases like “exploring strategic alternatives” on earnings calls, that’s not filler; that’s code for “the door is open.” For private equity and activists, a leadership shakeup isn’t noise. For private equity and activists, a leadership shakeup signals an opportunity.
If you observe early activist footprints or insider buying, it’s crucial to take notice; these signals often precede significant changes. Small 13D filings, initial positions from known activist funds, or even quiet insider accumulation following a selloff often precede major moves. Activists don’t always go public immediately. Before launching a campaign, activists probe, build stakes, and engage in behind-the-scenes activities. Meanwhile, insider buying, especially from C-suite or board members, can signal internal confidence in pending restructuring or sale. These aren’t random trades. They’re breadcrumbs from people with better visibility. If you have the ability to interpret them, they can guide you towards the next significant event before it occurs.
The market might make the business seem more complicated than it really is. The stock trades like it’s too complicated or broken, even when you can see a clear, cash-generating model that is often narrow and stable. That gap presents a fantastic opportunity for spinoffs, carve-outs, or sum-of-the-parts strategies, where the valuation is significantly higher when the company is divided. Putting the company in the wrong peer group or its reporting structure could mask its true value. Smart investors can discern the true value amidst this noise. The playbook here is the same: get rid of the distractions of the business, make the story clearer and cleaner and start the re-rating. When the market misinterprets clarity for disorder, private equity and activists intervene to correct the situation and profit from the discrepancy.
Stay Ahead Of The Smart Money
Just because a company lands on a buyout watchlist doesn’t mean the stock pops overnight. In fact, it often does nothing, trading sideways, or even drifting lower. That’s the trap. Most investors lose interest and move on. But when the moment hits, and that could be a 13D filing, a spinoff announcement, or a strategic review—the rerating is fast and unforgiving. This is where positioning early, before the headlines, delivers real alpha. By the time CNBC discusses it, the easy money has already vanished. Private equity and activist investors are not simply randomly investing in the market. These investors follow patterns that recur frequently, and you can do the same if you pay attention. If a stock meets three or more of these criteria, someone is already modeling it. The actions they have planned don’t come slowly; they happen quickly and reward those who saw the indicators early.
We monitor these situations daily at The Edge. In this game, alpha is not mere chance; it is a deliberate process.
On the date of publication, Jim Osman did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
