Global Acquirer Trends: Private Equity to bring a wave of opportunities in 2024

Private equity investment witnessed a much-documented decline in deployment in 2023 as rising interest rates constrained financing, while economic uncertainty and market volatility clouded company outlooks. Investment value fell in most geographies, although deal numbers were more resilient, indicating a focus on smaller investments, less generous valuations, and greater caution on the part of acquirers.

While private credit stepped in to fill part of the financing gap vacated by traditional lenders, buyers and sellers often struggled to agree on price. As a result, mid-market valuations declined steadily in many geographies throughout the year.

Despite the overall drop in 2023 deal volumes, our experience across the mid-market supported the trend that private equity would, on a selective basis, still compete aggressively on valuation and timing in sale processes for the most attractive assets, in particular within the software and tech-enabled services sectors.

A stabilisation in prices led to thawing activity in the second half of 2023. It was a particularly strong year for bolt-on acquisitions as private equity sponsors proactively supported existing portfolio companies with deals to grow market share and open new lines for growth^[1].

Although relatively few in number, private equity grabbed headlines for public-to-privates transactions in Europe. Private equity firms focused on listed companies trading below prior share-price peaks and at significant discounts to US peers.

2024 Deal Acceleration

After an improved finish to the year, M&A activity is likely to accelerate in 2024. PE firms are expected to bring a wave of opportunities to market from the first quarter as they look to capitalise on increasingly benign conditions and bow to rising pressure from limited partners for distributions.

While some sellers are reported to be prepared to accept lower valuations^[2], record levels of liquidity may apply upward pressure on valuations. According to S&P Global Market Intelligence, funds in need of deployment totalled $2.59 trillion in December 2023, up some 8% on the prior year^[3]. Furthermore, banks appear ready to compete for lending, potentially increasing the quantum of debt available and pushing down on margins.

In contrast to 2023, M&A activity this year could be skewed to the first three quarters of 2024, with US elections likely to dampen activity in the final quarter.

[1] https://www.penews.com/articles/private-equity-dealmakers-cheer-resilience-in-europes-buy-and-build-market-20240123

[2] https://www.ft.com/content/abea759d-3556-43f1-905f-26aeb30c18dc

[3] https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/private-equity-firms-face-pressure-as-dry-powder-hits-record-2-59-trillion-79762227

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