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16 Jan 2024
Insight
Global
6m read
The buy-out market was rather subdued throughout 2023, with global private equity (PE) deal volume down by 22% year-on-year, according to Mergermarket.
This is due, most notably, to uncertainty in the pricing of debt, given steep global monetary tightening since the Covid pandemic. It also reflects more general economic concerns, such as the resurgence of inflation or possible recession (both of which appear to have subsided).
These factors have resulted in a continuing and fundamental mismatch in sell-side and buy-side expectations amongst both PE firms and strategic acquirers. PE firms have however remained busy on fundraising and portfolio management, including bolt-on acquisitions and restructuring assets. They have also amended and extended debt, indicating that financing is still available for strong credits.
As the rates environment stabilises (and absent any new major disruptive macro events), many PE firms enter 2024 in good shape to take advantage of an expected increase in activity, with strong support from lenders. This is supported by indications we have had that many PE firms expect a busy first half of 2024.
Private credit has now evolved from an alternative financing option to a mainstream solution for leveraged buy-outs (LBOs), with even traditional investment banks setting up a private credit option. PE firms are aware there is a lot of dry powder even if the liquid market stays shut – when valuations eventually converge as markets stabilise, there will be plenty of debt to support LBO activity.
Ambarish Dash
London
The French PE sector, similarly to the property market, is currently torn between high expectations from the sellers and increasing lending rates for buyers which make it harder to obtain financing. This antagonism has paralyzed the market and put sellers and buyers in a wait and see position.
Cyril Boulignat
Paris
Where portfolio companies are underperforming, PE firms may reach the point where they simply need to sell. Firms may alternatively have options to buy more time with soft restructurings for some assets.
John Chetwood
London
With a large amount of capital raised within secondaries funds in 2021 and 2022 (including some significant funds that are solely focused on GP-led secondaries) we expect to see more activity in GP-leds, as well as the continued growth of secondary transactions in adjacent private capital strategies – notably in the infrastructure sector.
Stephen Newby
London
We are expecting PE firms to look to optimise their exit routes as the IPO market reopens in 2024. As always, it will be a careful balancing act between execution risk and complexity on the one hand and valuation on the other – with the availability of debt on the buy-side a key part of the equation.
Michael Jacobs
London
Key contacts
Chapters
- Global M&A Outlook 2024: Ready for take-off?
- Geopolitics – Shaping the transactional landscape
- Selling the deal – Auction, bilateral or something else
- Takeovers – A deal at the right price
- Merger control, FDI and FSR – The triple impact
- ESG – Corporate citizenship in the deal
- Private equity – At a turning point
- Energy transition – The pendulum swings
- Global M&A Outlook 2024 – Regional perspectives
- Global M&A Outlook 2024 – Sector and broader perspectives
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© Herbert Smith Freehills 2024